Tuesday, May 5, 2009

importance of term lending (1)

Many short-term loans are in effect term loans, because they are more or less routinely renewed whenever they come to maturity. Likewise, businesses may borrow from banks on a pledge of business property with the intention of using such loan proceeds to finance capital expenditures, or additions to permanent working capital. in the reported statistics, however, such loans would not be reported as term loans, but would be identified instead as real estate loans. In short, reported figures show an impressive growth in this kind of bank lending. By the end of 1976, such term loans at large commercial banks totaled $45.2 billion. This was 47 per cent of the $96.2 billion total of commercial and industrial loans at these same large commercial banks. New York City banks, which account for more than a third of business loans of weekly reporting banks ($35 billion at the end of 1976), have an even higher proportion of business loans outstanding as term loans.
LARGE CORPORATIONS DESIRE TERM LOANS The demand for term loans centered heavily on New York City banks in the 1960 's and the 1970's, not only because they had enough funds to satisfy most of these demands but also because New York City banks cater particularly to large corporations. These large firms normally finance most of their operation from internal source and from the capital businesses.

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