Define intermediate term financing & discuss its characteristics.
Intermediate-term funding for short-term and long-term financing is an interim alternative source of finance. In most situations, intermediate-term funding is used to meet the fund’s long-term requirements. Intermediate-term funding may be described as “Funds available for more than one year and less than 10 years shall be referred to as intermediate-term funding.” In general, for 3 to 7 years, intermediate-term funding is used.
Discuss characteristics of intermediate term financing.
The following are some important characteristics of intermediate-term funding:—
- Maturity: For more than one year & less than ten years, intermediate-term funding is completed. Basically, for 3 to 7 years, this funding is completed.
- Users of term financing: All kinds of business entities, such as small, medium & large intuitions, may be used for intermediate-term finance. Essentially, term financing is used for companies that do not get approval to enter the stock market for capital collection by selling securities & debentures.
- The objective of credit: Intermediate-term funding is used to meet the need for working capital, buying equipment, and expanding the company’s construction.
- Sources: Commercial banks, insurance firms, development banks, agencies, investment companies, leasing companies, etc. are sources of term funding. The most important positions are those of commercial banks.
- Repayment method: Term loan repayment depends on the arrangement between lenders and borrowers, but in certain installments, term loans are repaid in most instances.
- Security provisions: For small businesses, protection is important, however, large companies may receive term loans without security.
- Flexibility: Versatility is an integral aspect of intermediate-term financing. It is possible to adjust the amount of the loan & repayment period via discussion.
What are the different types of intermediate term financing?
The following are the different types of intermediate-term financing:-
- Bank term loan: Commercial banks usually offer loans for more than one year to different business entities and this loan amount is repaid by one or more payments. These loans are known as bank-term loans.
- Revolving credit: Revolving credit is an arrangement between a borrower and a bank in which, through certain installments, a borrower can collect a certain sum of credit at any time.
- Insurance company term loan: Insurance firms & some other financial intuitions offer loans with terms & their loans vary because they enforce high-interest rates from bank term loans. In general, term loans from insurance firms are issued for 7 to 10 years.
- Equipment financing: Another important example of term loans is the financing of machinery. In this process, any equipment belonging to him is pledged to the borrowers. These loans are usually obtained for more than one year. So these credits are called term credits.
- Lease financing: Lease financing is an arrangement in which the owner of an asset (the lessor) gives an exclusive right to use the asset to another party, typically for a negotiated period of time, in exchange for the payment of the rent.
Discuss the different sources of intermediate term financing.
Among the important sources discussed below, there are different sources of intermediate-term financing:
- Commercial bank: The principal sources of intermediate-term financing in Bangladesh are commercial banks. Commercial banks offer loans from the public’s deposit capital. Commercial banks cannot have long-term loans because their money & time may be withdrawn by the deposition.
- Insurance company: The second source of intermediate-term funding is the insurance business. Insurance firms are more cautious in issuing loans than commercial banks. In order to reduce risks, insurance firms are involved in giving loans to strong and well-known industries.
- Development bank: The development bank is a financial intuition that provides resources for the particular sector of the economy to grow. In order to develop, expand & modernize the industry, such banks grant term loans. In this business, Bangladesh’s Shilpa Bank plays an important role.
- Development agencies: Some government development agencies provide term loans, such as the Bangladesh Small & Cottage Industries Corporation (BSCIS), which grants cottage industries term loans.
- Finance company: The finance firm is an expert source of short-term and intermediate-term financing.
- Leasing company: In intermediate-term lending, the leasing firm plays an important role in granting permission to use fixed assets for a particular period.
What are the advantages of intermediate term financing?
There are some important advantages of term financing. These are as follows:
- Flexibility: The great value of intermediate-term support is versatility. The time & amount of the loan can be adjusted by the borrower.
- Low Cost: Intermediate-term funding is less expensive than other forms of funding.
- The convenience of repayment: Via some installments, the borrower can repay the term loan. They, therefore, prefer it over other sources of funding.
- Renewable: The deal for the term loan is renewable. The length of the term loan can be increased or shortened by the borrower.
- Repaid financing: It takes a lot of formalities and time to sell the securities in the stock market for the receipt of funds. On the other hand, from a financial intuition that retains fewer formalities, we can raise funds.
Who are the users of intermediate-term financing?
(i) Manufacturer (ii) Service industries (iii) Small & cottage industries
(iv) Farmers (v) Medium & large scale trading concern (vi) Farmer project
