Module 12: Bank credit and loan documentation

Question 1

4 types of banks

Answer 1

1. Commercial banks
2. Investment banks
3. Universal banks
4. Merchant banks

Question 2

Commercial banks

Answer 2

Acts as an intermediary between those individuals or companies with surplus funds and those that require funds

Intermediation and risk management

Question 3

Securitisation

Answer 3

process of converting illiquid assets into marketable asset-backed securities. The development of securitisation has led to DISINTERMEDIATION and a reduction in the role of financial intermediaries, as borrowers can reach lenders directly

Question 4

Types of bank facility

Answer 4

Committed facility

• term loan
• revolving credit facility (RCF)

Uncommitted facilities
- overdraft

Question 5

Stages of the bank credit process

Answer 5

1. request for facilities
2. submission of business plan
3. credit sanction considered and documented
4. credit sanction granted
5. funding provided

Question 6

What types of things will the borrower look to negotiate with the bank

Answer 6

1. cross-default clause
2. covenants
3. amount
4. terms
5. margins
6. repayment profile
7. interest rate
8. security
9. fees and expenses