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Various intricacies involved in taking bank loan

MEMO:

Mr. Wilkson, Manager, I.T.

Subject: 1) Purchase of Computer, Printer and Server
2) Through loan from a Bank.

A loan is basically apportioning of financial assets between the lender and the borrower for a particular period. But for the use of his money the lender charges a fixed amount of interest. Of the four types of income rent, profit, wages interest is the fourth type. You may call it a cost of borrowing. It is the income of the lender.

Normally loans are of following types:

i) Installment loan;
ii) Overdraft;
iii) Secured;
iv) Unsecured;
v) Long Term and
vi) Short Term.

Installment Loans are disbursed in one go and repaid with interest at the agreed intervals Overdraft is a facility against say a Bank's Fixed Deposit which starts incurring interest when a cheque is issued by the borrower. Secured loans are against a collateral and unsecured without it. Long Term Loans are for the purchasing of costly capital items for long periods which can be repaid with interest in installments out of profits. Short Term loans are like working capital paid within a short period. They are meant to meet the day to day expenses of the running of the business during the period company's bills receivable are met by the customers.

loan creates an obligation on the borrower that he will pay the interest at the fixed or adjustable rate by the period agreed upon until the entire amount, called principal is repaid. In the event of default the lender will have the right to take the possession of the article against which the loan has been extended

The company being a legal person functioning through the board of directors headed by a chairman has to authorize through a resolution to a director, Senior Manager generally the Chief Finance Officer or the Chief Accountant to enter into contract with the lending bank or Finance Company to borrow a specified amount as loan against any collateral or bills receivable for a Long Term Loan, over draft facility, working capital or any kind of revolving loan. The company's signature is the seal that is embossed on the stamp paper and then signed by the above authorized persons under Company's stamp which must begin with the words for and behalf of the XYZ Co. Inc.

The company can lease the equipment without any out of pocket expenses, with tax benefits and 100% financing including shipping and set up. For technology equipment it has the option to go either for the bank loan or lease it as it may suit it.

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MEMO:

Mr. Wilkson, Manager, I.T.

Subject: 1) Purchase of Computer, Printer and Server
2) Through loan from a Bank.

As desired by my supervisor, I shall attempt to explain here various terminologies used by banks in granting of loan to facilitate your judicious decision in the matter. To begin with let me first explain what is loan and why it is availed.

A loan is basically apportioning of financial assets between the lender and the borrower for a particular period. But for the use of his money the lender charges a fixed amount of interest. Of the four types of income rent, profit, wages interest is the fourth type. You may call it a cost of borrowing. It is the income of the lender.

Normally loans are of following types:

i) Installment loan;
ii) Overdraft;
iii) Secured;
iv) Unsecured;
v) Long Term and
vi) Short Term.

Installment Loans are disbursed in one go and repaid with interest at the agreed intervals Overdraft is a facility against say a Bank's Fixed Deposit which starts incurring interest when a cheque is issued by the borrower. Secured loans are against a collateral and unsecured without it. Long Term Loans are for the purchasing of costly capital items for long periods which can be repaid with interest in installments out of profits. Short Term loans ...

Solution Summary

For many people legal banking jargons are "Greek and Latin". But loan is a complicated matter and may land in trouble if taken without understanding their implications.

The most important part of it is the purpose of the loan and its utilization solely for that purpose. Any diversion of funds is viewed serious irregularity by the bank as well as law.

Besides it is does not come free. Loan has cost in the form of interest. That is bank's charge substantial amount of interest on the amount of loan advanced.

Non repayment of periodical installments are viewed as serious irregularity and may jeopardize any loan from the bank

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