MEANING OF LOAN ADVANCE, TYPES OF LOANS, TYPES OF ADVANCES , MORTGAGE, PLEDGE, HYPOTHECATION, ETC.

1. F. JOSEPHINE LENTA
ASSISTANT PROFESSOR
DEPARTMENT OF COMMERCE
COLLEGE OF SCIENCE AND HUMANITIES
SRM IST
RAMAPURAM
BANKING THEORY LAW AND PRACTICE

2. UNIT 5
LOANS AND ADVANCES

3. Loan
Aloanis asumof moneyborrowed fromabankor financialinstitution bya
businessorindividualwiththeobligationtorepayit after aset period.As per
Wikipedia,“Infinance,aloanisthe lendingofmoneybyoneormore
individuals,organizations, orother entities to other individuals,organizations
etc.”

4. Advance
Anadvanceisatypeof loantypicallyused bybusinesses to meet
theirshort-term fundingneeds. Itisgenerally expected to be
repaidinless thanayear,accordingtotheterms andconditionsof
theReserve BankofIndiaandthesanctioning authority, i.e., the
bank.Advancescanbemadebased onprimarysecurity, collateral
security, orpersonalguarantees fromdirectors, promoters, or
partners.

5. Types of loans
 Secured andUnsecuredloans
 Demandloan
 Termloan
 Purposedriven loan
Types of Advances
 Cash credit
 Overdraft facility

6. LOANS AND ADVANCES
LOANS
Thetermloanreferstomoneyborrowed byoneentity
fromanother,repayableafteradefinedperiodand
carryinganinterestrate.
Inadvance,abank provides fundsto anentityfora
specificpurpose, andthefundsarerepaid overa short
period.
Debt Credit Facility
Long Term Short Term
More Less
May or may not be secured Primary security, collateralsecurity and
guarantees.
ADVANCES

7.  MORTGAGE :-
Mortgage is a legal assurance given to the creditor. The
interest of the property gives to the creditor for meeting
an obligation. After the repayment of the debt the
property will return to his borrower
 PLEDGE
A pledgeisan actual deliveryof the moveable property to
the lender as a security for a loan. The ownership however,
remains with the borrower:-
 Hypothecation
Hypothecationisthe processof chargingon movable
securitiesitems.Thechargesthat areappliedto the borrower’s
movable possessions iscalled the hypothecationin the simple

8. Fixed Deposit Receipt
FDRor aFixed Deposit Receipt isa document thatis givenby
the bankor thecompany to the depositoron bookinga fixed
deposit.
Just likea shopkeepergivesa bill (invoice)on buying
something from the shop, FDRis also likea bill in which all
the importantdetailsabout the fixeddeposit madeare
mentioned.

9. Principles of Good Lending
 SAFETY
 LIQUIDITY
 ERSIFICATIONOFRISK
 PROFITABILITY
 PURPOSE