Unit 6 Clockwise report ( distiction) PDF

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A trademark identifies the brand owner of a particular product or service. Trademarks can be used by others under licensing agreements; for example, Bullyland obtained a license to produce Smurf figurines; the Lego Group purchased a license from Lucasfilm to be allowed to launch Lego Star Wars; TT T...

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Advantages of Bank Loans Following are some advantages of banks loans. 1. 1. 2. 3. 4. 5. 6. 7. 8. 2. 1. 2. 3. 4. 5. 6. 7. 8.

Table of Contents A dvant ages of B ank Loans P u rc ha s e w i th o ut L i q u i d i ty D ri ve r o f G ro wth P rov i d e s C a p i tal fo r D a i l y Op e ra ti o n s B ette r I n te res t R a te s Fl ex i b i l i ty Ac c o un ti n g & T a x A d v a n ta g e s O w n ers h i p R e ma i n s w i th B orro w e r C as h D i s c o u nt

Di sadvant age s of B ank Loans Ad d i ti o n a l B urd e n o n Co s t o f G o o d s S ec uri ty N e ed s a nd C re d i tw o rth i n e s s P a rti a l F u n di n g R e q u i re m en t S tri c t R e p a y me n t S c h e du l e P rep a y m e n t P en a l ti e s a nd C h a rg e s I nte re s t R a te R i s k / C os t o f F u nd s P roc es s i n g C h arg e s I nc re a s e d C o mp l i a n c e s

Purchase without Liquidity A major goal of a bank loan is to lend to people who do not have ready cash. A bank loan can help an individual or a business in buying something as simple as a car or a home for which he doesn’t have a corpus, or it can help businesses to buy machinery or

set up big units for which it doesn’t have money. The scope of a bank loan is vast, and the borrower can borrow as per their capacity depending on their creditworthiness.

Driver of Growth Bank loans are major drivers of growth, especially for public and private sector companies. Very few companies may have enough cash flow for financing huge expansion. However, in today’s fast-track economy, expansion is the only way to have sustainable profitability. This is where bank loans come into the picture. Suppose, Company A wants to expand its production for which it needs to invest in machinery. If the cost of machinery is 5 times the company’s yearly net income , Company A does not have to wait for 5 years to expand. It can borrow a term loan from the bank to fund its expansion plans and repay it over the next 5 years, thereby accelerating growth.

Provides Capital for Daily Operations The banks have special loans that can help a company fund its day to day operational

capital and cash cycle. The working capital bank loans and cash credit loans are major bank loans that are used for the purpose. This allows companies to be flexible about their debtor and creditor agreement. Suppose Company X has purchased goods worth USD 1000.00, the payment of which has to be made in 10 days, whereas it sells these goods in USD 1200.00, which it will receive in 30 days. In such a situation, Company X can borrow USD 1000.00 from the bank for 20 days and repay the USD 1000.00 to the bank after it receives payment of USD 1200.00 from the debtor. A major advantage of such loan is that the company has to pay interest only for the amount and the number of days for which it has borrowed.

Better Interest Rates Before a century, the borrower would borrow money from unorganized money lenders. The money lenders would usually exploit the borrowers by asking exorbitant interest rates and abnormal collateral

demands. With the rise of organized banking from the beginning of the 1900’s, these troubles have vanished. Organized and systematic bank loans are provided to borrowers with minimal interest rates. Furthermore, even today bank loans are cheaper as compared to other loans from other financial institutions such as NBFC’s.

Flexibility Bank loans provide an element of flexibility to the borrower, which can be very beneficial in long-term. The borrower can choose the duration of the loan and amount of EMI’s, whereas the amount of loan and interest rates are negotiable. For example, if an individual takes home loan from the bank, he can decide if he wants to repay the loan in 5, 10 or 20 years.

Accounting & Tax Advantages The interest on bank loans is deductible from taxable income, this is an advantage to the borrower in the form of tax savings. In addition, the borrower gets the advantage of budgeting and planning for monthly loan expenses. This is especially true for fixed-rate loans, although a simple

model can be prepared for changes in floating-rate loans.

Ownership Remains with Borrower With ownership perspective, bank loans can be a great source of funding for companies. If a company decides to raise funds, it has many alternatives such as issuing equity shares , raising private equity, including venture capital, etc. However, in all these methods the company may have to lose some part of the ownership share. Whereas in a bank loan, the company can raise funds as well as keep the ownership....