Types of Loan Facilities for SMIs/SMEs

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1. Overdraft, the most popular of all loans
An overdraft allows a current account holder to withdraw in excess of his/her credit balance up to an approved limit. The utilised portion of the overdraft will be subject to interest charges.

2. Bridging Loan
Usually granted for housing or mixed development projects, the terms of the loan are flexible to meet customers’ needs and are designed to meet the cash flow requirements pending the receipt of project income.

3. Term Loan
A term loan is a loan granted for a period of time, and repaid in monthly instalments. A loan of this structure is suitable for asset acquisition as it caters to the borrower’s cash flow requirements.

4. Fixed Loan
A fixed loan is a loan granted for an agreed period of time with periodic repayments, which includes interest charges. It is somewhat similar to a term loan.

5. Revolving Credit
Revolving credit is usually useful as short-term working capital funding and allows for flexible drawdown of funds as and when required. Borrowers are also given repayment options of either servicing of monthly interest and roll over of principal amount or partial repayment of principal amount, whichever is within their financial means.

6. Blanket Hire-Purchase
This is a facility suitable for hire-purchase of commercial equipment and vehicles. An agreed limit is fixed and drawdown will run down upon utilisation of the loan amount. Here, repayment will be over a fixed schedule which will usually compliment borrowers’ needs.

7. End-Financing
Usually granted to property developers to enable the shops and houses developed to be sold to purchasers. Financing is almost automatically given to the purchaser of a new property under this facility.

8. Financial Guarantee
This facility offers financial guarantee in the event of default or non-performance by a borrower. Some of the financial guarantees offers include performance guarantee, security deposit guarantee, advance payment guarantee and financial guarantees issued to insurance companies.

Types of Trade Financing Facilities

In addition to loan facilities, commercial banks also offer the following trade financing products:

1. Letter of Credit (LC)
This facility enables a business to import goods promptly.

2. Banker’s Acceptance (BA)
This is a useful facility when your SMI business is of export nature and requires immediate funds for working capital or if yours is a business of import nature, you will require funds to pay your suppliers promptly for goods delivered. Similarly, you may be a trader wanting to pay in cash to obtain discounts.

3. Trust Receipt (TR)
This is an ideal financial tool that can help improve your liquidity simply by    allowing your goods to be delivered to you with payment to be made later.

4. Shipping Guarantee (SG)
This facility allows you to take delivery of your imports before receipt of the bills of lading, thus avoiding unnecessary delays.

5.   Bank Guarantee (BG)
This allows you to supplement your cash flow through Performance Guarantees and/or Financial Guarantees.