Tuesday, May 5, 2009

importance of term lending (2)

In periods of high-level capital expenditures, however, large business firms turn with greater frequency to large commercial banks. Partly it is to use bank financing as a supplement to other sources of funds and partly as a temporary substitute for capital market credit, when yields are rising in the financial markets.
TERM LENDING AS INTERIM FINANCING It has been estimated that nearly half the total capital expenditures of public utilities that are ultimately financed in the capital markets are initially financed by commercial banks. For manufacturing industries such interim financing by banks is equal to about one fourth of the capital expenditures ultimately financed by capital market flotations. The effect of both interim financing at banks plus term lending that remains with the banks until final repayment is that very large sums of money are being loaned by banks for more than one year.

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