1. Long-Term Loans to Business Firms
1.1. Term loans
1.1.1. Term loans are designed to fund long-term business investment (equipment or construction)
1.1.2. Payment is made by amortization monthly/quarterly Payment is scheduled based on firm’s cashflow cycle
1.2. Revolving credit lines
1.2.1. Allowing the customer to borrow up to pre-specified limit, repay all or a portion of the borrowing and re-borrow as necessary until the credit line matures
1.2.2. Being one of the most flexible business loan, granted without specific collateral and maybe short-term or cover a period as long as 5 years
1.3. Project loans
1.3.1. The most risky of all business loans to finance fixed asset construction designed to generate revenue in future (oil refineries, power plants, harbor facilities…)
1.4. Loans to support firm acquisitions
1.4.1. Loans to finance mergers/acquisitions of businesses
2. Analyzing Business Loan Applications
2.1. Sources of repayment for business loans
2.1.1. The borrower’s profits or cash flows
2.1.2. Business assets pledged as collateral
2.2. Analyzing business loan applications
2.2.1. Common size ratios of customer over time
2.2.2. Financial ratio analysis of customer’s financial statements
3. Financial ratio analysis
3.1. Control over expenses
3.2. Operating efficiency
3.3. Marketability of product or service
3.4. Coverage ratios
3.5. Liquidity indicators for business customers
3.6. Profitability indicators
3.7. The financial leverage factor as a barometer of a business firm’s capital structure
4. Types of contingent liabilities
4.1. Guarantees or warrantees behind products
4.2. Litigation or pending lawsuits
4.3. Unfunded pension liabilities
5. Pricing Business Loans
5.1. The Cost-Plus Loan pricing Method
5.2. Price leadership model
5.3. Below-prime market pricing
5.4. Customer Profitability Analysis (CPA)
6. Short term business loans
6.1. Self-liquidating inventory loans
6.1.1. Used to finance the purchase of inventory
6.1.2. Taking the advantage of cash cycle in a business firm
6.1.3. Begin when cash is needed for purchase of inventories and end when cash is available to retire the loan
6.2. Working capital loans
6.2.1. To finance the purchase of inventories
6.2.2. Bank can set up a credit line (max funding need) in a certain short period (a few months)
6.2.3. Loans can be renewed provided that the borrower pay off all significant portion of the loan before the renewal Loans are secured by account receivables, pledges of inventory
6.3. Interim construction loans
6.3.1. support the construction of homes, apartments, office buildings, etc
6.3.2. Fund supplied to hire workers, lease construction equipments, purchase building materials & develop land
6.4. Security dealer financing
6.4.1. short-term (overnight to few days) financing new securities purchase backed by the dealers’ holdings of government securities as collateral
6.4.2. Can be extended to investment banking firm in underwriting new securities issued by the government or firms
6.4.3. Can be lent directly to businesses and individuals in buying stocks, bonds, options, etc.
6.5. Retailer and Equipment financing
6.5.1. Banks finance receivables that dealers selling automobiles, home appliances, furniture, business equipment,… take on they write installment contracts to cover customer purchase
6.5.2. Contracts are purchased by lenders at an interest rate varying with the borrower risk, collateral quality and loan terms
6.6. Syndicated Loans
6.6.1. Loans package extended to a corporation by a lender group