Intermediate Term Financing

Reported by group 10Judy Mark AquitarMarilou Rubinas

Camille YsonSheska De Luna

INTERMEDIATE TERM FINANCING

Intermediate term financing refers to borrowings with repayment schedules

of more than one (1) year but less than ten (10) years.

INTERMEDIATE TERM FINANCING

It provides a useful alternatives.

It provides a source of funding.

Tax advantages are sometimes derived from the exercised.

Comparatively high-cost than shot-term.

The lender collect money by selling borrower’s collateral security.

Restrictions over the borrower.

ADVANTAGES DISADVANTAGES

INTERMEDIATE TERM FINANCING

Convenience in repayment.

 Flexibility

Keeping a portion of loan.

It is not easy to get loan for financially weak, small and new business.

ADVANTAGES DISADVANTAGES

Term Loans by Private Financial Institution

Intermediate term financing is provided by private commercial banks, finance

companies, insurance and pre-need companies.

Term lending by private commercial banks

 Private commercial banks [PCBs]constitute an easily identifiable source of term loans. The

extensive network of branches of PCBs provide easy access to intermediate term credits. Example of banks with branches

spread all over the Philippines are the Philippine National Bank and Metropolitan

Bank and Trust Company.

TERM LOANA term loan is a monetary loan that is repaid

in regular payments over a set period of time. 

Types of Term Loan:1. Straight Term Loan2. Revolving Credit3. Evergreen Credit

Term Loan Agreement

- include the basic features of the loan such as repayment schedules, interest rates, and maximum commitments.

Common provisions for Loan Agreement

• The borrower is required to maintain a certain amount of working capital or a given current ratio.

• Borrower is required to furnish the bank of the creditor with audited annual financial statements and detailed direct quarterly or monthly statements.

• The borrower is prohibited to sell or dispose his business property, except inventories. The prohibition also includes the pledging of assets to secure other loans.

• The borrower is required to provide sample insurance coverage to his business properties and key employees.

• Restrictions are imposed to the borrower regarding cash dividends and a celling on officers’ salaries is imposed.

• A restriction is imposed on the borrower regarding the expansion of fixed assets beyond the amount of the term load.

• The borrower is prohibited from incurring additional long term debt or additional lease obligations.

• The borrower is not allowed to repurchase the company’s own stock.

Repayment of term loans

- The repayment of term loans depends upon the nature of the business borrower. Majority of the ordinary business term loans require equal periodic payments over the life of the loan in amounts adequate to retire the full amount of the principal. The payment schedule is based on the borrower’s projected ability to generate cash.

EQUAL PRINCIPAL PAYMENTS - The loan is repaid in equal amounts of principal. The installments are unequal, however, because the interest payment is largest in the first year and become smaller as the principal is gradually paid.

EQUAL AMORTIZATION- This loan is repaid in equal installments under

this type of repayment. The amount applied to principal is smallest in the first year, then the same payments to principal gradually increases through the payment years, the largest which is made on the last year. The decreasing payment on interests, however, equalizes the uneven payments on principal.

Ex P100,000 loan payable in 10 years at 8% annual interest.

Example: P100,000 loan payable in 10 years at 8% annual interest.

3.) BALLOON PAYMENT

Under this repayment program, the loan is repaid in equal instalments for a number of years then larger and final payment is made at maturity date.

4.) DEFERRED PAYMENT OF PRINCIPAL WITH GRACE PERIOD A debt which has been incurred and will

be paid back at some point in the future.

The payment of principal under this program is deferred, although payments on interest are made.

This repayment program suits loans to fiancé projects with long gestation periods like new orchard projects

and livestock projects.

A variation of the deferred payment plan allows the borrower a grace period of one to seven years during which the payment of principal and interest is deferred.

Term Lending by Insurance Companies Insurance companies are important sources of term

loans. The premiums generated constitute advances to the insurance companies for periods varying from six months to five or more years.

this gives rise to funds

Term Lending by Finance Companies

Finance companies were pioneers in the field of intermediate credit at a time when commercial banks still emphasized short-term loans and insurance companies were restricting their business loans to the purchase of publicly- offered bond of large corporations. They helped to fill a serious gap in the financing of small and medium-sized business and aided the mechanization of industry through the introduction of installment financing of equipment. Under this arrangement, a down payment is required and the balance is paid to the finance company in installments designed to fit the needs and depreciation schedule of the firm buying the machinery and equipment.

Term Loans by the Government

The government offers loan programs through different departments that support individuals, communities and businesses according to their varied and unique needs. These loans provide capital for enterprises deemed worthy by the government that might not qualify for a loan on the open market. 

Individuals and small businesses with little or no seed capital or collateral may find the conditions for a market rate loan unaffordable. Low cost government loans attempt to bridge this capital gap for deserving individuals and parties, thus enabling long term benefits for the recipients and the nation.