Saturday, May 2, 2009

purposes of term lending

Term loans are extended by commercial banks for two somewhat different purposes.First, banks make intermediate-terms loans (five to eight years in initialmaturity) that are repaid from the borrower is earnings or other internal sources.
Second,banks extend interim credits with typical maturities of one to two years, which are then repaid from the proceeds of new bond or stock issues in the securities markets. In either case, a great advantage of this type of borrowing is that a bank term loan can be tailored to the specific needs of the individual borrower through direct negotiation with the lending bank, so that the borrower can have more freedom in determining the repayment schedule,thus permitting more efficient use of the proceeds of the loan.

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