This document outlines different types of business loans including their purpose, duration, collateral, and special characteristics. Self-liquidating loans finance inventory purchases and last 60-90 days, using inventory and receivables as collateral. Working capital loans also finance inventory, last less than a year, and charge interest on actual amounts borrowed with compensating deposit balances required. Interim construction financing supports construction until completion when it switches to long-term loans. Security dealer financing supports stock purchasing and underwriting for a few days using government securities as collateral. Retailer and equipment financing supports durable goods installment contracts and dealer inventory financing for 90 days renewing for 30 days using inventory as collateral. Asset-based financing uses accounts receivable and inventory as

1. Purpose Duration Collateral Special characteristics
Self-liquidating
loans
Finance the purchase of inventory
(raw material and finished goods)
60-90 days
Take advantage of normal cash cycle of a
business
Working capital
loans
Purchase of inventory or raw
materials
Less than 1
year
Account
receivable and
inventory
Floating interest rate based on the amount
actually borrow
A fee is charged on actually borrowing or
available value of the credit line
Compensating deposit balances: borrower is
required to deposit a percentage of actual
borrowing
Interim
construction
financing
Support the construction of
permanent structures( hiring
workers, rent or lease construction
equipment, building materials, etc)
When the
construction
complete,
switch to
long-term
loan
Depends
Security dealer
financing
Financing purchase of stock or
maintaining an existing portfolio
Supporting underwriting process of
investment banks
Lend directly to businesses and
individuals buying stocks
Overnight to
few days
Government
security
High quality,
Not than half amount of securities to be loan,
except for small-cap stocks
Retailer and
equipment
financing
Support installment contract of
durable goods(automobiles, home
alliances, etc), financing
receivables of merchandise dealers
Floor planning: lender agree to
finance whole inventory of dealers;
lender pay manufacturer for goods
to be delivered to dealers’
inventory
Floor
planning: 90-
day term
initially,
renewed for 1
or more 30-
day periods
inventory
Interest rate varies with risk of borrower
Pay-as-sold: dealer send check to lender as
soon as goods are sold
Sold-out-of-trust: goods sold without paying
for lenders -> repossess remaining goods and
return to manufacturer for credit
Asset-based
financing
Business cycle
Short-term asset
of a firm:
Factoring: lenders are responsible for
collecting receivables

2. account
receivables and
inventory,
valuable papers,
factoring
Syndicated
loans(SNCs)
Drawn: Financing expansion or
operation
Undrawn: back a security issue
Lender engages in SNCs to: reduce
risk + earn fee income
Heavy risk: expansion or venture
Can be traded in secondary market
Long-term loans
Term business
loans
Purchase of equipment or
construction of facilities
Longer than 1
year
Fixed assets
Interest rate is fixed or floating, higher than short-
term loan
Revolving
credit financing
Help even out fluctuations in
business cycle: borrow when
sales are down and repay during
boom
Can be granted
without
collateral/
Inventories
Commitment fee is charged on unused proportion
of the credit line or entire amount of available
credit
2 kinds of loan commitment:
- Formal loan commitment: predetermined
maximum amount and interest rate
- Confirmed loan commitment: lender
approve every customers’ borrowing request,
interest rate not be set in advance
Long-term
project loan
Credit to finance the construction
of fixed assets designed to
generate a flow of revenue in
future period( oil refineries,
power plant, etc)
Very long Fixed assets
High risk: large amount of fund involved, natural
difficulties, adverse effect of laws and regulations,
changing interest rate
Often be granted to projects sponsored by a group
of companies, and be shared by several lenders
Recourse basis: lender can recover funds from the
sponsoring company in case of project default
Problems of business loans:
- Involving large amount of money; success depends largely on business firms’ operations -> high risk and damage of failure