Collatral or Securities

Collateral comprise assets and other form of securities that secure debt obligations of customers. Collaterals are Categorized into two Categories. 1. Primary Collaterals Primary Collaterals Primary collateral Comprises assets that are acquired / to be acquired with banks financing Secondary Collaterals Secondary collateral is over and above primary collateral and it serves the purpose of additional security. Types of Collaterals Immoveable Properties: It means land, buildings and things attached to the earth permanently fastened to anything attached to earth. Moveable Properties: Tangibles; like goods, stock, machinery, marketable securities etc. Intangibles; like book debts, receivables etc. 2. Secondary Collaterals

Ways of Financing Immoveable Properties There is only One way to Finance immoveable property which is Mortgage. Mortgage A legal agreement that conveys the conditional right of ownership of an asset or property by its owner (the mortgagor) to a lender (the mortgagee) as security for a loan. Ways of Financing Moveable Properties
Hypothecation

Hypothecation refers to the security of the moveable property without transferring the possession and the ownership of the goods.
Pledge

The bailment of goods as security for payment of debt or performance of promise constitutes to pledge.

Lien It refers to the right of holding in the goods of the debtor till he clear the debt. Lien is basically a charge on the amount of interest. Charge
Charge Refers To The Security Interest Created On The Property Of The Company. Fixed Charge Fixed Charge means a charge over assets of a company, which attaches to the assets from time of its creation. Floating Charge Floating Charge means a charge which floats over assets of a Company until as event of default occurs or until the company goes into liquidation, at which time the floating charge crystallizes and attaches to the assets intended to be covered by the charge.

Importance of Corporate Lending

Bank loans have an increasing role for corporate activities. In most countries, bank loans are the main source of financing for small and medium-sized enterprises. Even though the role of banks decreased in the last years, banks take advantage of a privileged position which allows them to provide liquidity cheaply than other intermediaries. The activity of bank lending is often influenced by the adverse selection due to the fact that corporate clients are often reluctant, in providing the complete and real information about them.

Prcautions in Lending Loans

The bank should carefully check these documents as to their genuineness, nature of goods, quantity, and amount. The bank should accept only those securities which are recognized and considered good by its head office. The shares with falling prices should not be accepted as a pledge. There should be no outstanding tax on the property. And Property should not be pre-mortgaged. The bank must physically inspect the property. Review of the goodwill of the business firms of the guarantor and the borrower. Profit position of the previous years. Ability of the business to pay to pay off the loans. The purchasing price and market value should be determined.