CHAP_6_Lending to business and pricing business loans

CHAP_6_Lending to business and pricing business loans -...

Info iconThis preview shows pages 1–10. Sign up to view the full content.

View Full Document Right Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: LENDING TO BUSINESS FIRMS AND PRICING BUSINESS LOANS Chapter 6 Key topics 1. Types of business loans: short- and long-term 2. Analyzing business loan requests 3. Collateral and contingent liabilities 4. Sources and uses of business funds 5. Pricing business loans 6. Customer profitability analysis (CPA) 17-2 Short term business loans 1. Self-liquidating inventory loans : used to finance the purchase of inventory, taking the advantage of cash cycle in a business firm Demand for traditional inventory loans is on the decline due to the development of the JIT (just in time) and supply chain management techniques 17-3 Self-liquidating inventory loans: Cash cycle 1. Cash is spent to acquire inventory 2. Goods are produced or shelved and listed for sale 3. Sales are made (often on credit) 4. The cash received is used to repay the self- liquidating loan 17-4 Short term business loans 2. Working capital loans : closest to self-liquidating loans Bank can set up a credit line (max funding need) in a certain short period (a few months) Loans can be renewed provided that the borrower pay off all significant portion of the loan before the renewal Loans are secured by account receivables, pledges of inventory Borrower has to pay floating interest rate on disbursed amount & a commitment fee is charged on unused credit line. Compensating deposit balances may be required. 17-5 Short term business loans 3. Interim construction loans : support the construction of homes, apartments, office buildings, etc. Fund supplied to hire workers, lease construction equipments, purchase building materials & develop land The loan is paid off with a longer-term mortgage loan issued by another lender Mini-permanent loan providing fund for the construction and early operation of a project in 5-7 years 17-6 Short term business loans 4. Security dealer financing : short-term (overnight to few days) financing new securities purchase backed by the dealers holdings of government securities as collateral Can be extended to investment banking firm in underwriting new securities issued by the government or firms Can be lent directly to businesses and individuals in buying stocks, bonds, options, etc. Margin requirements are enforced ( 50% of acquired securities) 17-7 Short term business loans 5. Retailer and Equipment financing : Banks finance receivables that dealers selling automobiles, home appliances, furniture, business equipment, take on they write installment contracts to cover customer purchase Contracts are purchased by lenders at an interest rate varying with the borrower risk, collateral quality and loan terms Floor planning : lender finances the dealers goods purchase from manufacturer and be paid as goods are sold 17-8 Short term business loans 5. Asset-based financing : Credit secured by the shorter-term assets of a firm that are expected to roll over into cash in the future...
View Full Document

This note was uploaded on 05/23/2011 for the course FIN 360 taught by Professor Mcgill during the Spring '11 term at Neumann.

Page1 / 47

CHAP_6_Lending to business and pricing business loans -...

This preview shows document pages 1 - 10. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online