TERMS LOANS, PRIMARY&

COLLATERAL SECURITY,
CASH CREDIT FACILITY

Jessica Vaz 131

Mohit Vazir 132

Priya Vora 133

Jai Vussonji 134

INTRODUCTION
A monetary loan that has to be repaid in
regular payments over a set period of time is
referred to as a term loan
These loans are sanctioned for acquisition of fixed
assets like land, building, plant/ machinery, office
equipment, furniture-fixture, etc, for purchase
of movable assets like tractors, cattle, machinery
Term loans are also a source of long term debt. In
India, they are generally obtained for financing
large expansion, modernisation or diversification
projects.

Term loans can be given on an individual basis

but are often used for small business loans. The
ability to repay over a long period of time is
attractive for new or expanding enterprises, as
the assumption is that they will increase their
profit over time
One thing to consider when getting a term loan is
whether the interest rate is fixed or floating

TYPES OF TERM LOAN

Long-term loan
Intermediate term loan
Short-term loans

LONG-TERM.
Long-term loans usually mature in one to seven
years, but can be longer for real estate or
equipment.
These loans are used for major business expenses
such as vehicles, purchasing facilities,
construction and furnishings.
They also can be used to carry a business
through a depressed cycle.

INTERMEDIATE-TERM LOANS
Term loans finance the purchase of furniture,
fixtures, vehicles, and plant and office equipment.
Maturity generally runs more than one year but
less than five.
Consumer loans for autos, boats, and home
repairs and remodeling are also of intermediate
term

SHORT-TERM LOANS

Short-term loans, typically lines of credit,

working capital loans, or accounts receivable
loans, usually reach maturity within one year or
less
A short term business loan is an option for an
established business that has a strong support
and patronage

APPRAISAL OF TERM LOAN

Feasibility Study
(a) Managerial Competence
(b) Technical Feasibility
(c) Commercial Viability
(d) Financial Viability

(A) MANAGERIAL COMPETENCE

(i)
(ii)
(iii)
(iv)
(v)
(vi)

Past Experience
Qualification
Technical and Managerial Skill
Entrepreneurial Skills
Character
Capability to arrange promoters contribution /
margin.

(B) TECHNICAL FEASIBILITY

(i)
(ii)
(iii)
(iv)
(v)

Requirement of Licenses, permits etc.

Location
Product and Process
Plant and Machinery
Raw Material and Labour Avaliability

(C) COMMERCIAL VIABILITY

(i)
(ii)
(iii)
(iv)
(v)

Examination of the goods whether it can be sold in

quantity and price as projected by the entrepreneur.
The present and futuristic trend of demand for the
product.
The level of competition
The capability of the unit to penetrate the market to
gain market shares etc.
Price of the product.

(D) FINANCIAL VIABILITY

(i)
(ii)
(iii)
(iv)

Sufficient finance whether it is available at

reasonable cost
Sufficient profit whether available to service
the creditors and share holders.
Sufficient funds / cash whether available to
repay term loan installment.
The Break even point whether the margin of
safety are satisfactory.

PRIMARY SECURITY
Primary security is the asset created out of the
credit facility extended to the borrower and / or
which are directly associated with the business /
project of the borrower for which the credit
facility has been extended.
For eg. Term loan given by bank to a company
for plant & machinery. In this case p&m is
primary security

COLLATERAL SECURITY
Collateral security is any other security offered
for the said credit facility. For example,
hypothecation of jewellery, mortgage of house,
etc.
In the previous example if company gives
building as additional security, then property will
become collateral
Collateral securities are generally used to cover
the balance of the risk, which is unable to cover
by primary

CASH CREDIT FACILITY

Cash Credit makes a provision by lender (mainly
bank or financial institute) for loan by depositing
the sanctioned amount of the loan into new
account from which borrower can withdraw as
per requirement within permissible amount fixed
by lender for specific time or period
Used to fulfill working capital requirements for
business
Cash credit theory based on Pay on Demand

HOW CASH CREDIT FACILITY

WORKS?
Bank or Financial Institute maintains a Cash
Credit Account for their borrower by
transferring the sanctioned amount into Cash
Credit Account from which borrower can
withdraw as per their requirement.
Borrower can withdraw money within
sanctioned limit & daily limit
Interest charged on amount actually withdrawn
in daily basic
For eg. Bank sanctions a loan of Rs 10 lakhs for
a period of 3 months & gives you a cash credit
cheque book.

Withdrawal/Deposit

Amount (Rs)

Opening Bal

Balance (Rs)
10,00,000

1st withdrawal

2,00,000

8,00,000

2nd withdrawal

1,50,000

6,50,000

Deposit

50,000

7,00,000

3rd Withdrawal

5,00,000

2,00,000

Interest is charged on the number of days you

require cash and interest is paid on outstanding
amount
Cash credit is a better option for borrowers &
not for bank because bank does not know how
much money will be drawn
Thus asset-liability management becomes a
problem