Wednesday, May 20, 2009

Business Lending by banks

why do business firms borrow from commercial banks? A nationwide sample survey conducted by the survey Research center of the University of Michigan shows that business firms mainly borrowed to secure either working capital or funds for capital expenditures. Borrowing for working capital includes such purposes as building up or carrying inventories, seasonal credit, borrowing for financing sales or credit to customer, discounting receivables, and the like. the latter purposes all fall within the traditional doctrines of the proper use of bank credit, whereas the use of bank credit to finance capital expenditures does not.

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