This product is designed to finance asset acquisition, general capacity expansion and long-term financing needs, may also be used for specific expansionary purpose or clearly identifiable cash outlay of specific amounts.
Issues to consider include determining the source/mode of payment, installments in line with obligor’s capacity/turnover etc.
Term loans may be short term (up to 1 year), medium term (1 – 5 years) or long term (above 5 years).
Project Finance represents loans in which the primary revenues generated from it act as both the source of repayment and security for the exposure. This type of financing is usually for large, complex and big-ticket projects.
It is principally a form of ‘Non-Recourse’ or ‘Limited Recourse’ financing, whereby the bank bases its credit decision solely or primarily on the cash flows of the project, with respect to repayment of the project debts.
These Projects might include:
- A power generation project
- A mass transit project
- A telecommunications local services, long distance and value-added project
- A power transmission or distribution project by laying a network of new transmission or distribution lines
- A petroleum extraction, refinery, pipeline project
Key characteristics: moratorium period (where applicable), a thorough feasibility study, disbursement patterns, monitoring, use of a qualified project manager, experienced business managers etc.
Associated risks include Cost overrun, over/under estimation of cash flows, and repayment typically hinged on the success of the project.
Mortgage loan is a loan secured by real property through the use of a document which serves as evidence of the existence of the property through the granting of a mortgage which secures the loan.
Margin Loan is a loan that allows the customer to finance against shares. The term margin refers to the difference between the market value and the cost of the shares. The primary and secondary sources of repayment are from the sale of the securities purchased.
Object Finance is a method of funding the acquisition of physical assets (e.g., ships, aircraft, fleets, etc.) where the repayment of the exposure is dependent on the cash flows generated by the specific assets that have been financed and pledged or assigned to the lender.
Real Estate Loan
Real Estate Loan also known as “Income producing real estate” is a loan provided for funding of real estate (such as, office buildings to let, retail space, residential buildings, industrial or warehouse space, and hotels) where the prospects for repayment and recovery on the exposure depend primarily on the cash flows generated by the asset. The primary source of these cash flows would generally be lease or rental payments or the sale of the asset.
Commercial Real Estate Loan
Commercial Real Estate Loan also known as “High-volatility commercial real estate” is the financing of commercial real estate that exhibits higher loss rate volatility (i.e., higher asset correlation) compared to other types of specialised lending.
Financial instrument or bill used in financing short-term trade obligations or asset-based self-liquidating credits whose tenor must not exceed 180 days.
BAs are used to finance underlying trade transactions (local or foreign).
Associated risk includes primary obligor and improper matching of repayment to maturity.
Issues to consider:
(1) Identification of the underlying transaction with the title being held as collateral by the bank
(2) Acceptance must be by physical instrument in the form of a draft supported by signed agreements
(3) Investors should know the issuers of the draft
This is a form of financing structure that allows the bank to directly match a surplus entity to a deficit entity. Unlike Bankers’ Acceptances, this creates only a secondary obligation on the part of the bank, if guaranteed.