Sei sulla pagina 1di 28

Intermediate

Term
Financing
F-501 Introduction to
Finance
Prepared by:
1. Sadia Mussarrat Mostafa, ID: 41050
2. Umme Salama, ID: 41026
3. Nusrat Sharmin, ID: 41051
4. Muntasir Azad, ID: 41047
Group #02
Section A 5. Preena Wardena, ID: 41013
Spring 2019 6. Iffat Ara Jannat, ID: 41005
7. Ashish Kumar Audhikari, ID: 41004
Intermediate Term Financing
● Intermediate term financing refers to borrowings with repayment schedules of
more than one year but less than ten years, they are generally repaid directly
from the assets they were used to finance i.e. they are self-liquidating in nature.
● It is primarily practiced by business enterprises for:
○ meeting up fund requirements to acquire important useable items
○ the modernization of machinery, or to simply buy new equipment
○ expanding the business by opening new locations and hiring new
employees
○ making investments or even for refinancing debt
Characteristics of
Intermediate Term
Financing
Characteristics of Intermediate Term
Financing
● MATURITY - The maturity period for
intermediate term financing is more
than 1 year, and usually a maximum of
5 years. In some special cases, it can be
extended up to 7-10 years.
● SIZE - The size of an intermediate-term
loan is usually small since the financer
is either a Commercial Bank or an
Insurance Company.
Characteristics of Intermediate Term
Financing
● USERS OF TERM FINANCING - All
types of institutions can avail
intermediate term financing, be it
small, medium, or large.
However, this type of financing is only
used by companies that do not have
access to capital market, as they
cannot sell share or debenture to raise
capital.
Characteristics of Intermediate Term
Financing
● OBJECTIVE OF CREDIT - These loans are
mostly acquired to meet the need of
working capital. In special cases, they can
be used to purchase machinery, or even
for building expansions.
● SOURCES - The main sources of
Intermediate-term loans are Commercial
Banks, Insurance Companies and Leasing
Companies.
Characteristics of Intermediate Term
Financing
The two main leasing companies in
Bangladesh which provide Intermediate
term financing include IDLC Finance
Limited and ULC (United Leasing
Company Ltd.).
● REPAYMENT METHOD - In most of the
cases, the payment is made through
installments; although sometimes
payments are made at a time at the end ...
Characteristics of Intermediate Term
Financing
… of the credit period. In certain cases, a part of
the principal and interest is paid together
quarterly, semi- annually or in annual installments
and it is called the capital recovery method.
● SECURITY PROVISION - Since intermediate-term
loans are primarily used to purchase permanent
assets, they are backed by collateral. Buildings,
machinery plants etc. are used as security as well.
Characteristics of Intermediate Term
Financing
● COST OF FINANCING - The cost of an
intermediate-term loan is less than the cost
of long-term loans, and a little bit higher than
that of short-term loans.
● FLEXIBILITY - Many commercial mortgage
lenders offer intermediate-term financing at
a time when enterprises need it the most.
This finance type is flexible and the
repayment depends on the nature of ...
Characteristics of Intermediate Term
Financing
the business borrower. The terms and
conditions for intermediate-term loans are
not rigid, and that is why it is preferred by
many businesses of various sizes.
● RENEWABILITY - Intermediate term
finance is generally renewable. Banks and
other business associations can renew the
loan in favor of the borrowers depending
upon their genuine cause.
Types of
Intermediate Term
Financing
Types of Intermediate Term Financing
● BANK TERM LOAN - A loan from
a bank for for equipment, real
estate and working capital that is
paid off like a mortgage for
between one year and ten years.
● REVOLVING CREDIT - Revolving
credit is a line of credit where the
customer (corporations or
individuals) pays a commitment
fee to a financial institution to ...
Types of Intermediate Term Financing
… borrow money and is then allowed to use
the funds when needed, e.g. credit cards,
home equity lines of credit (HELOCs) and
retail (department store, gas, airline) cards.
● INSURANCE COMPANY TERM LOAN -
The premiums generate constitute
advances to the insurance companies for
periods varying from 6 months to 5 or more
years, which gives rise to funds held for
policyholders by the insurer.
Types of Intermediate Term Financing
● EQUIPMENT FINANCING - If the firm
has equipment, the same can be
pledged as collateral and loan can be
obtained; as with other secured loans,
the lender determines how much to
lend against the collateral.
● LEASE FINANCING - A noncancellable,
multi-year contract in which the lessee
agrees to make a series of payments to
a lessor for the use of an asset.
Sources of Intermediate Term
Financing
Sources of Intermediate Term Financing
● COMMERCIAL BANK - The
extensive network of branches of
commercial banks provide easy
access to intermediate-term
loans.
● INSURANCE COMPANY - The
companies pool clients' risks to
make payments more affordable
for the insured.
Sources of Intermediate Term Financing
● DEVELOPMENT BANK - Financial
institutions dedicated to fund new and
upcoming businesses and economic
development projects by providing
equity capital and/or loan capital.
● FINANCE COMPANY - Financial
organizations that accept deposits (and
pay out interest on them) and lend to
consumers and/or businesses.
Sources of Intermediate Term Financing
● LEASING COMPANY - Leasing
companies engage in financing the
purchase of concrete assets. The
leasing company is the legal owner of
the goods, but ownership is
effectively conveyed to the lessee.
● PENSION AND PROVIDENT FUND -
A pension or provident fund-backed
loan is secured by retirement fund
savings instead of a mortgage bond.
Advantages of Intermediate
Term Financing
Advantages of Intermediate Term Financing
● FLEXIBILITY - Any amount can be
obtained according to the need of
the firms.

● LOW COST - Lower cost compared


to long term financing.
Advantages of Intermediate Term Financing
● REPAYMENT - Borrowers can repay the
money in installments. It is flexible and
can be extended.

● RENEWABILITY - If the borrowers fail to


repay the installment, the loan period is
extended.
Advantages of Intermediate Term Financing
● RAPID FINANCING - Collecting loan from
capital market by selling share or debenture
is time consuming.

● CONTROL - It is debt financing ,so the


interest of the equity shareholders are not
diluted.

● SOURCE FOR SMALL FIRM- As they do not


have access to capital market.
Disadvantages of
Intermediate Term Financing
Disadvantages of Intermediate Term Financing
● HIGH COST - It is comparatively
high cost than short-term financing.

● INCONVENIENCE INSTALLMENT
PAYMENT- If inflow of cash is
decreasing
Disadvantages of Intermediate Term Financing
● SECURITY PROVISION - If
borrower fails to repay installment,
the lender collect money by selling
borrower’s collateral security.

● RESTRICTIONS - Lenders impose


some restrictions over the borrower
which limits the borrower’s power.
Disadvantages of Intermediate Term Financing
● COMPENSATING BALANCE - The
borrower is required to keep a
portion of loan as compensating
balance.
Thank you! Any questions?

Potrebbero piacerti anche