P3.2 Flashcards
Loans secured from banks which are payable in one year; companies are asked to sign promissory notes as sign of indebtedness
Short term bank loan
Factors in choosing the bank
Firm must know the bank’s line of expertise
Loyalty of the bank towards its customers during times
Bank should be capable of handling the firm’s borrowing requirement, depository transactions, service charges, compensating balance requirements, and interest rates
Bank with highly competitive interest rate
Types of bank financing
Unsecured loan
Secured loan
Credit line
Installment loan
Loans backed up by collateral; banks insist with this type of loan because the entity has not yet established a good relationship with the bank
Secured loans
Granted on a periodic basis, normally for one year, and up to a specific amount; the loan under this facility is given on a lump sum ot on a piecemeal basis, provided that this will not exceed the amount of loan granted
Credit line
Loans paid in a time/period series—monthly, quarterly, or semi annually;
Installment loans
Payments may be through:
Straight line method
Scientific method
A method with fixed principal payment every periodic payment; computed by dividing the principal by the number of periods. Added to the principal payment is the interest payment which is computed based in the outstanding balance
Straight line method
A method in which the total payment per period is equal; principal payment is obtained by deducting the interest from the total payment
Scientific method
Activities related to the accounts holders’ account
Compensating balance
Activities related to bank credits
Compensating balance
Amount charged to the borrowing company for the use of funds of the bank
Interest rates
Methods of interest charging
Adds on interest
Discounted interest
