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Term Loans: Assets and WC Margins
Term Loans: Assets and WC Margins
Also referred as Term Finance, represents a source of debt finance, which is generally repayable in more than one year and less than ten years. Employed to finance acquisition of Fixed Assets and WC margins. Carry fixed interest rates, monthly or
TERM LOAN
Acquisition of New P &M, Expansion, Modernization, Technology up gradation; Debt swap
SHORT TERM LOAN Repayable within 3 years MEDIUM TERM LOAN Repayable in more than 3 years and less than 6 years LONG TERM LOAN Repayable in more than 6 years 2
Proper evaluation of the customer is preferred which measures the financial condition & ability to repay back the loan in future Credit appraisal is the process of appraising the credit worthiness of the loan applicant
What to look at ?
Credit Worthiness
Cash Flows
Risk
Financial Evaluation
This is the ultimate part of the evaluation process where all the things are summed up in the terms of money.
The cash flows are estimated, the instalments periods are fixed, the interest rate is computed and the project is made bankable.
Credit Worthiness
Personality of the borrower
Willingness to repay
Management talents
FACTORS THAT BANKS CONSIDER Credit worthiness of the borrower Integrity/reputation Credit risk profile Sensitivity to economic and market developments Liquidity Solvency Profitability of business Resource efficiency
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CREDIT DECISIONS
Safety of loans is directly related basis on which decision to lend is taken type and quantum of credit to be provided terms and conditions of the loan Two-pronged approach Pre-Sanction appraisal To determine the bankability of each loan proposal Post-Sanction control To ensure proper documentation, followup and supervision
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Concerned with measurement of risk(iness) of a loan proposal Financial Analysis past and projected Cash Flow Analysis Credit Rating Assessment of credit needs Income tax and other tax returns/ assessments Confidential reports from other banks and financial institutions Credit Report (CR) needs to be regularly updated Appraisal should reveal whether a loan proposal is a fair banking risk 10