Bank loans: Short Term Loans

Debt, Eliminate, Loan, Deficit, PayoffThe bank credit is essential for financing businesses. We will focus here on the different types of bank loans. We will first see short-term bank loans, then medium and long-term bank loans.

Short-term bank loans

Short-term bank loans mainly concern Cash loans and solutions to mobilize customer receivables.

Cash loans

Cash loans make it possible to obtain cash resources so that the company can finance its short-term needs (operating expenses, for example).

The following constitute cash loans:

  • The bank overdrafts are corresponding to the possibility for a company to have a current account with the debtor bank.

Generally, the company benefits from an authorized overdraft on its account, which allows it to be negative up to a certain limit and for a limited period.

  • The cash advances or facilities fund, which enables the company to benefit from a cash advance in a fairly short time.

The mobilization of trade receivables

The best-known receivables mobilization solution is factoring, but there is also commercial discounting and daily financing.

  • Factoring is the process by which a specialized institution (factor) supports all or part of the collection of accounts of a company against remuneration.

The factor makes a cash advance to the company and is responsible for collecting trade receivables. The factor will also have to bear the risk of non-recovery of trade receivables. In return, the company pays commissions to the factor.

  • The commercial discount allows a company to cede commercial paper to its bank and immediately obtain the cash relating to its effects without waiting for the occurrence of due dates.

The commercial discount can therefore only be used with customers who pay by commercial paper, and the bank reserves the right to refuse the discount for certain customers who are considered too risky.

  • The daily financing is similar to the commercial discount, except that it allows transferring to the bank all the existing means of payment as soon as the corresponding invoices are issued.

Wallet, Money, Finance, Cash, CurrencyUnlike the commercial discount, it is possible to use daily financing for all customer accounts.

Of these three solutions, factoring is the most expensive solution because it also includes the assumption of the risk of non-payment, unlike the commercial discount and daily financing.

Medium and long-term bank loans

The long-term bank loans and medium-term are basically two forms:

  • The leasing furniture or real estate;
  • The bank loan.

A financial lease is an operation meeting two major conditions:

  • a rental, by the lessee, of movable or immovable property to a leasing organization (this is the lender),
  • and the possibility for the lessee to acquire all or part of the rented goods for an agreed price which takes into account, at least in part, the payments made as rent.