There are different types of loan facilities available in the market for business organizations. The different types of loan facilities can be classified into two parts: 1.Fund Based Credit 2.Non-Fund Based Credit..
Different types of loan facilities of fund based are as follows
1. Loan: A loan is a type of Fund-Based Credit where the Borrower has to repay the Credit within the pre-agreed time & interest. Let’s take a look at different types of loans.
A. Demand loan: The Borrower has to repay the loan on the demand of the lender. There is no fixed tenure for the repayment.
B. Term Loan: These loans come with a predefined repayment schedule and tenure.
2. Different types of loan facilities Unsecured Loan & Secured Loan
A. Unsecured Loan: These loans are offered to the Borrower without any collateral but generally carry a high interest rate.. These loans include Personal loans and student loans as well.
B. Secured Loan: The lenders offer these loans against any tangible or non-tangible asset like home, land, vehicle etc. If the Borrower defaults on the payment, his/her assets can be acquired by the lender.
2. Cash Credit:: Cash credit is provided to the business owners to carry out their regular business expenses within a predefined limit. The interest is charged on the daily closing balance.
3. Over Draft: This Credit Facility is offered to Current Account holders in a particular bank, to borrow the fund more than their existing balance for a specific period.
4. Credit Card: Under this facility, a Credit Cardholder can spend a fixed amount of money within in a limit given by the Bank.
5. Export Finance: Export finance is the financing facility which is provided by the banks to exporters to meet their production and export needs. The different type of export finance are A) Packing Credit Advances B) Post Shipment Finance
Non-Fund Based Credit:
On the Contrary, Non-Fund Based Credit is where the Fund is not transferred directly to the borrower. The different types of non fund based credit are
1. Letter Of Credit :A letter of credit is an assurance provided by the Bank to the seller on behalf of the buyer that the seller will receive the buyer’s payment at regular intervals. It also states that if the buyer fails to pay the seller for any reason, the Bank will be responsible for the remaining or full payment.
2) Back-to-Back Credit : Back to Back L/C is a type of import L/C, either inland or in abroad, which opens against lien on valid export L/C (Mother or Master L/C) received by export oriented industrial unit operating under the Bonded ware house system, subject to observance of domestic value addition requirement prescribed by Ministry of Commerce from time to time.
3. Bank Guarantee: Under this type of Credit, Bank offers assurance that under any circumstances, the Guarantee issuing Bank will fulfill any financial losses incurred by the protected party as mentioned in the Contract.