Credit Types of loans
Credit Types of loans – Credit (from the Latin “credo”) means trust that allows one party to present resources to the other, where this other party does not immediately reimburse the resources to the first party (thus generating debt), but instead becomes obliged to repay or return the provided resources (or other materials of equal value) at a later date. The resources provided can be financial (for example, a cash loan), or they can consist of goods or services (for example, for consumer lending). A loan is any form of deferred payment. A loan does not necessarily mean transferring debt into money. Unlike money, credit itself cannot act as a unit of account. Credit Types of loans.
Commercial loan
Companies often offer loans to their customers as part of the terms of the purchase agreement. Organizations that offer loans to their clients often use credit managers. Commercial credit is the largest use of capital for most business to business (B2B) merchants in the United States and is an important source of capital for most businesses. For example, Wal-Mart, the world’s largest retailer, used trade credit as a larger source of capital than bank credit; Wal-Mart’s trade credits were 8 times the capital invested by shareholders. There are many forms of commercial loans. Different industries use different specialized forms. All of them, in general, represent the collaboration of enterprises in order to make efficient use of capital for various commercial purposes.
Commercial loan example
The operator of an ice cream shop can sign a franchise agreement, according to which the distributor undertakes to deliver ice cream in accordance with the “Pure 60” terms with a 10% discount on payment within 30 days, and a 20% discount on payment within 10 days … This means that the operator has 60 days to pay the bill in full.
If there were good sales during the first week, the operator may be able to send a check for all or part of the invoice, and make an additional 20% on the ice cream sale. However, if sales are slow, resulting in low cash flows, then the operator may decide to pay within 30 days and receive a 10% discount, or use the money for another 30 days and pay the full invoice within 60 days.
An ice cream distributor can do the same. Why are they doing that? First, they have significant ingredient and other costs for the ice cream that they sell to the operator. There are many reasons and ways to manage the terms of a commercial loan for the benefit of your business.
financial conditions
Distributors can be aggressive in trying to find new customers or help them get settled. It is not in their best interest for their clients to go out of business due to volatile cash flows, so they strive to achieve two things with their financial conditions:
- Letting newly opened ice cream shops poorly manage their investment in stocks for a while while learning in their markets unless there is a significant negative balance in their bank accounts that would put them out of business. This is essentially a short-term business loan issued to help expand the distributor’s market and customer base.
- By tracking who pays, and when, the distributor can see potential development problems and take action to reduce or increase the acceptable amount of commercial loans it makes to prosperous or unprofitable customers who may go bankrupt and never pay for their ice cream delivery.
Commercial loan alternatives
One alternative to a simple commercial loan is when a supplier offers to transfer a batch of products to a trader for sale, for example, to a gift shop. In this case, the original supplier retains ownership of the goods until the store sells them.
Consumer loan
A consumer loan can be defined as “money, goods or services provided to a person as payment”. Common forms of consumer credit include credit cards, car loans, fixed payment cash loans, consumer lines of credit, retail loans, and mortgages. This is a broad definition of consumer credit and is consistent with the Bank of England’s Personal Lending definition.
The loan cost is an additional amount on top of the loan amount that the borrower must pay. It includes interest, commissions and any other fees. Some costs are mandatory and required by the lender as an integral part of the loan agreement. Other expenses such as credit insurance may be optional. The borrower chooses whether to include them as part of the agreement. So if you check the box on the application form asking to take out payment insurance if the consumer wants it, then the cost of credit insurance will not be included in the calculation of the annual interest rate.
How to get a loan. “Six C” credits
- Lenders, especially bankers, use a formula known as the Six Cs when evaluating a loan application. Understanding this formula will help a potential borrower to be as attractive as possible.
- Character. Basically, this is a summary of the person. Lenders are looking for people who they believe will be reliable and who are willing and able to meet their financial obligations.
- Solvency. It is a person’s ability to repay a loan; it is based on current and expected earnings adjusted for existing debt.
- Pledge. The property of the borrower, provided by him as security for a loan, which can be real estate, shares, savings, etc.
- Terms. Both regulatory and economic conditions are considered. Regulatory conditions apply to lenders of individual circumstances, such as when banks do not lend to specific areas. Economic conditions determine the general policy of the lender towards the loan.
- Credit history. This is the individual’s credit history.
- Capital. This is the net worth per person (the size of the person’s wealth) as indicated on the personal financial statement.
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