Banks provide long term loan for asset purchase as well as margin money for working capital purpose. In the case of asset purchase, a bank would provide a long- term loan which would be repaid either from the cash flow generated from the business or from refinancing or disinvestment. In such a case, the security is generally created on the asset which is purchased out of the term loan. Besides, some other collateral is also taken as security in the form of term loan. In the case of term loan for working capital purpose, generally, other assets are taken as security. Those assets can be immovable properties the borrower generally has.
Trade Credit for capital goods purchase
As discussed in the case of working capital, if the term loan is borrowed in the form of foreign currency, the interest cost can come down. However, there are certain restrictions on term loan which can be borrowed in foreign currency. One such facility is called suppliers credit or buyer’s credit for import of capital goods. Since we have already discussed the mechanism of supplier’s credit and buyer’s credit , we shall not discuss the same.
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