A loan is a long-term financial debt, while debt in the medium and short term are usually called “credits”. A loan is a debt that has to be returned respecting specified stages (funds provided under contractual arrangements with the exception of bank overdrafts) involved, in conjunction with the equity to cover the sustainable financial needs of a company.
Loan types and issues
It is possible to distinguish two types of debt:
- Undivided loan is a loan made to a single lender (usually a financial institution).
- A bond is a loan that is born of the bond which is divided among many lenders. This is a loan available to large companies that can reassure investors.
The term loan depends on the person that provides the money. For the lender it is a credit, for the borrower, it is a debt.
The loan provides funding preserving the ownership of “buyer-borrower” under the guise nevertheless any warranty conditions. The loan can provide ease of payment to households and finance private business investment.
There is always a maximum borrowing capacity, which depends mainly on the income of the legal structure, but also on the guarantees, the company the size, profitability, and the amount of equity. The borrower is interested in maximizing the loan and minimize the risks generated by this loan in order to earn an income for himself. Depending on the country, the law limits the maximum debt ratio (likely to generate strong returns) to limit the over-indebtedness in a loss of market confidence and an increase in the risk group.
In terms of business strategy, the loan is a dependence in relation to its external environment that it will seek to reduce.