Jan 9 2014
In order to grow ourselves, we often rely on credits. There are various types of credits available, few needs to be repaid after short interval and few have longer credit limits say a year or may be more. Each of the credit requires some guarantee to be paid. And definitely interest incurred too.
Day by day banks are becoming more sophisticated in providing credit facility to their customers. Various form of credit through banks is available.
Overdraft: In this facility, you can withdraw more than your account balance. This is a short term loan facility in which bank entertains the customer by allowing him/her to withdraw more than the amount deposited. The bank will debit this amount from next deposit of the customer and will provide a period as a credit period to redeposit. Bank charges interest on this overdraft facility. This facility has an expiry date after which renewal of this service will be required
Cash Credit: These would also facilities where, overdrafts, a limit is set in account not greater than one year. However difference is that a separate “Cash Credit’ account is opened by bank to allow certain amount of withdrawal by customer. This is subject to some conditions in which customer is bound to provide security of assets to bank. Style of operating this account is like Current Account, the difference between usual current account as this credit facilitation Current account is , Bank defines the limit till which customer can make cash withdrawal which would be the excess of amount deposited.Business use to get this finance facility in order to meet day-to-day and regular nature of payment obligation, which can be refer as working capital payment.
Short Term loan: This is the loan period, usually last for one year. This type of loan could or could not have specific repayment schedule. On the other hand, STL with repayment schedule could be preferable.
Letter of Credit: This is a pre-import finance, As a promise on behalf of the client to pay an agreed sum of money to the beneficiary of the it,by following pre-requisite rules of the credit. And this amount is recognized as Contingent liability as its probability depends if second party withdraws on behalf of customer.
Payment against Documents: This is a kind of Financing provided to customer by the bank ,to pay import bills when customer do not have balance equal to the import bill received.
Syndicated Loan: A relatively huge amount of loan , provided by number of banks and financial institution thus reliance on single bank is reduced. The bank predominantly target to arranging credit is also known as lead.
Lease Finance: This is a type of borrowing facility given by bank to lessee to finance the lease agreement. Bank pays the lessor on certain terms and conditions and allows the use of leased asset to lessee. Ownership of the asset is with the bank not with the lessee.
Bank Guarantee: This is a facility offered by bank to its customer on the basis of certain provisions. Bank is the guarantor to creditor of customer, ensuring that customer is in a position to fully refund the loan by utilizing financial support from Bank. In this way, bank is under irrecoverable obligation to pay the loan amount to creditor.