By Ayo Emakhiomhe
BANK LOANS
We started a little while back with many posts so far on various ways of raising finance and how to go about this and their upsides and downsides.
The following methods are the ones we have posted on this blog.
a. Personal savings
b. Family and friends
c. Partnerships
d. Esusu/Ajo (contributory scheme)
e. Co-operative societies
f. Lease/rent
g. Contract/exchange
h. Credit lines
i. Credit card
j. Business angels
k. Venture capital funds
l. Clients/customers
m. Personal guarantees
n. Insurance
o. Private placements
You can access all these past posts from the archive to the right of the screen.
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Today we shall be discussing the financing method of BANK LOANS. This was supposed to be the last method as we had listed at the beginning, but please allow us add 1 last one again which is OUTSOURCING; this we shall discuss by the next post when we conclude on bank loans.
A bank is simply defined as an institution that engages in what we call financial intermediation. Financial intermediation is simply taking money from the sector/persons/businesses in the economy that has excess funds and lending to the sector/persons/businesses in the economy that lacks these funds or requires these funds at a price which forms the banks income.
In Nigeria we have various categories of banks; from the micro-finance banks to the international banks (large commercial banks). The main definer of these bank categories are their capital base and spread.
A loan in its simplest form is cash advanced to a customer as credit to be repaid over a defined period for a defined purpose at a defined price based on specific terms and conditions.
Banks raise funds in various ways from savings, deposits to bonds and guarantees, even borrowing from other institutions in forms of loans and grants.
It is all the funds raised above that the banks now offer to the sectors or businesses that lack these funds in various forms. These funds are usually available to both small and large institutions/businesses/governments both local and international depending on the focus/strength of the bank involved and the central bank policy direction as at the time of transaction.
It is noteworthy to know that the Nigerian system does not encourage banks to support the small businesses, but some are trying at this.
Loans given by banks are basically referred to as credits. These may be classified as short term, medium term or long term credits. These credits are usually for working capital financing, export/import finance, mortgages, leases (for example asset lease or equipment lease), contract financing and guarantees.
Let’s look at some of these credits especially the ones that affect the small businesses in Nigeria by next post.
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please read a book today.
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