A Review On Types of bank loans
Types of bank loans
Loans vary depending on their maturities, borrowers, the purposes in which they are used and the guarantees provided... Accordingly, it is easy for the bank to track its activity and to know the reasons for its progress or delay. And compare the types of activity with that offered by other banks. Here's how we deal with bank loans through these tablit criteria:
Bank loans on maturity
Bank loans are divided according to this criterion to:
1- Short-term loans: People often turn to the bank when needed in order to cover the deficit that comes to the treasury to get money to ensure that the production cycle continues in a normal state and we know that industrial and commercial enterprises need several weeks to go through the phase of purchasing raw materials and converting them into finished products, and then selling them taking into account the time given to customers to pay what they have, and from these data we can determine the duration of the loan recovery.
In this way, we conclude that a short-term loan is a loan to institutions (to finance exploitation activity) in order to give the production cycle the necessary flexibility, as required to contribute to the fund's deficit (liquidity deficit), or the desire to acquire or replace equipment and equipment for a year or less and to be fulfilled after the end of the process for which it is targeted.
Medium-term loans: Medium-term loans are directed to finance investments with a life span of up to seven (07) years, such as machinery, equipment, transportation and production equipment in general... Given the length of this period, the Bank is at risk of freezing funds, not to mention other risks related to non-payment possibilities that may occur depending on changes that may occur at the level of the borrower's financial position, and can in fact distinguish between two types of medium-term loans, such as refillable loans with another financial institution or issuer, and non-refillable loans.
Refillable loans: The lender can rediscount these loans with another financial institution or the central bank, allowing it to obtain liquidity in case of need without waiting for the maturity of the loan granted, and this allows it to reduce the risk of freezing funds and avoiding to some extent the liquidity crisis.
Non-refillable loans: In this case the bank does not have the possibility to rediscount these loans with another financial institution or the central bank, so it is forced to wait for the borrower to repay this loan, and here all the risks associated with freezing funds appear more.
3. Long-term loans: Institutions that make long-term investments turn to banks to finance these operations because of the large amounts they cannot fill on their own, as well as the duration of the investment and the long waiting periods before starting to receive returns. Long-term loans for this type of investment are often more than seven (7) years and can sometimes extend up to 20 (20) years. It is geared to finance a special type of investment such as access to real estate (land, buildings...). Due to the nature of these loans (the large amount and the long term), they are carried out by specialized institutions to rely on the mobilization of funds for long-term savings sources, which commercial banks are usually unable to collect.
Bank loans by guarantee
Loans are divided according to this criterion to:
1. Guaranteed loans: in return, they are provided with in-kind or personal guarantees and are therefore divided into:
Personal guaranteed loans: Granted without in-kind guarantee, the bank depends on the position of the client's financial position.
Loans with in-kind guarantees: Loans may be guaranteed with securities or loans with securities, shares and bonds that are required to be good and easy to trade or loans with a guarantee of bills, loans with contractor extracts and loans guaranteed by insurance policies... Deposit with the bank to secure the loan.
The most important thing that the banker considers when granting a guaranteed loan is the so-called margin, which represents the difference between the value of the asset provided as collateral for the loan and the value of the loan itself. Although margin is important in all guaranteed and unsecured lending transactions, this term is used only for secured loans.
2- Unsecured loans: The borrower's promise to pay is satisfied, as no principal or personal guarantee is provided for his return in the event of non-payment of the loan, this type of loan is granted after investigation from the customer's credit center and his ability to meet on time, which requires sources of loyalty and analysis of playlists and financial statements.
Loans are divided according to this criterion to:
Consumer loans: These loans are granted to individuals who need funds or support in order to meet their various living needs, or to obtain goods for personal consumption or to pay sudden expenses that the borrower's current income cannot face, provided that it is repaid from his income in the future or by liquidating some of his property and providing guarantees for it such as: securities, mortgage... And so on.
Production loans: These are financial amounts directed towards the various economic sectors, which are represented by the industrial sector, which needs raw materials, machinery and other necessary means, as well as the agricultural sector, which aims to satisfy the desires of individuals by increasing production, as the Foundation resorts to asking the Bank for assistance by requesting a loan to finance its agricultural crop and increase its revenues, or to finance the trade sector whose area of dealings is limited to export and import.
3- Investment loans: The loan granted to convert investment projects means the formation of fixed capital, which stays in the institution for a long period of time such as real estate, land, buildings... Investment loans are granted to investment banks and investment companies to finance their subscription to new bonds and shares, which are granted investment loans in the form of loans due on request or for securities brokers, and are also granted to individuals to finance part of their purchases of securities. The nature of these loans makes them highly risky, which leads specialized institutions (development banks, real estate banks) to look for ways to reduce these risks. The government's policy of "encouraging" the establishment of a new government in the country is a matter of concern.
4. Exploitation loans: Exploitation loans are short-term loans, which allow for the financing of a temporary period, ranging from a few days to a few months and not more than one year, the institution is resorting to this type of financing if it wants to cover the relative needs of its treasury and if it wants to face a commercial operation from a limited time, which is intended to finance exploitation activity and aims to cover the current assets, and therefore the objectives of the exploitation loans are multiple of them. The so-called slow circulation of stocks, import and export financing, financing pledges and the utilization of cash discounts, are usually the ones that offer this type of loan. These loans are considered short-term loans. Exploitation loans also take several forms, including:
Discount: An agreement under which the bank is obliged to pay immediately the debt securities against the obligation of the beneficiary deducted, the value is refunded in the event of non-payment of the value of the paper by the main contractor before it and the bank pays the amount in cash and credits it into the current account of the beneficiary and benefits for this transaction from the price or commission which is the discount rate for the commission price and applies this rate to the duration of the loan, which is the period between the date of submission of the paper to the discount and the maturity date. The discount is also defined as a form of bank loan to the customer. It is a process of accrediting a few banks under which at the disposal of their client a value and a commercial ring pending the due date, as the commercial securities given to the bank become his property and are paid by the debtor (withdrawn) at the due date.
Fund credits: This name is called because of its association with the fund, i.e. the current account of the customer, which is the one under which the bank provides money to the customer in exchange for a promise of payment with interest, and allows the latter to exploit the amounts at his disposal.
Acceptance: The bank's commitment to perform a service to its customer, in the form of a bill signed by the bank to ensure that this customer can be paid back to the debt, and this financing is not in the form of cash but is a signature on a bill of exchange so that it is collectible in any bank.
Documentary loan: Its use is foreign trade, which is a loan by signature, where the bank pays for the imported item and is between four people (seller, buyer, seller's bank, buyer's bank). It takes the form of a bank ing policy sent by the bank at the request of its customer to the other bank abroad.
Credit card: Are personal cards to settle business transactions, issued by internal or external financial institutions and granted to people who have continuous bank accounts, and this card bears the name and address of the owner (personal information) as he can pay the value of his current purchases by a certain amount without writing a cheque or paying money enough to sign his purchase lists and then send it to the customer's bank to collect its value.
Bank loans by borrowers
Loans are divided according to this criterion to:
Loans to individuals and loans to companies and other banks.
Loans to the private sector and loans to the government and the public sector.
Consumer loans and loans to producers and business owners.
Loans to customers and loans to others.
Under each type are subdivisions, the divisions are based mainly on the quality and profession of borrowers, and are useful in developing appropriate lending policies that favour one quality over the other based on the evidence gathered in this regard. Bank loans by source.
According to the source, bank loans are divided into:
The government's policy of "eliminating the "state" is a matter of concern. General.
2. External loans: The loan obtained by the State from outside its territory, whether from a foreign government or a natural or moral person residing abroad, the State needs additional funds and insufficient national savings as well as its urgent need for foreign exchange in view of the continuing increase in demand for consumer goods. The process of the loan and how it is granted varies depending on the lenders, if the loan is granted from a foreign country, the value of the loan is granted in the currency of the lending country and not in hard currency and is often in the form of consumer goods or production supplies. For this type of loan to develop its financial resources and to raise the level of its economic activity knowing that it increases its dependence on the lending state.