Bank Financing

Banks make profit through issuing of debt by way of loans, lines of credit, letters of credit and overdrafts. There are several forms of debt banks can extend to you. You will be surprised by the number of loan products your bank can make directly available to you. For as long as you have a good credit score and history plus a stable source of income you can access bank debt. Some bank loans are long-term like a house mortgage while others are short-term, e.g car loan. Common examples of bank loans issued by banks are given as follows; 

Consumer Loans 

These are also referred to as personal loans. If you get a personal loan from the bank, it may be unsecured or secured against your assets or by a guarantor. Banks advance unsecured loans on the basis of your credit worthiness and ability to pay off the loan from personal income. Unsecured loans are more risky to the bank and as a consequence, the cost of accessing them is significantly higher. Higher interest rates and sometimes restricted borrowing amounts are very common for unsecured loans. Repayment is normally through fixed amount installments over a fixed term. Examples of consumer loans include; home equity loan, salary loan, computer loan, etc. 

Why get a consumer loan? 

You can get a consumer loan for;
- medical treatment
- Education
- Vacation or picnic
- Household improvement and repairs
- Purchase of appliances, computers,etc
- Daily Shopping
- etc 

Business loans 

You only get a business loan if you want to start a business, expand an already successful business, buy machinery and real estate, etc. To get a business bank loan, you apply as a business, not as yourself. If it's a new business, the bank requests for a lot of documentation to ascertain the credit worthiness of your business. Be prepared to avail all necessary documentation to this effect. In general you can easily access a business loan if your business is in the growth and expansion stage since there is clear documentation  of the profit and sales volume. Businesses in the startup phase are considered high risk and owing to this banks may ask for personal collateral in addition. 

Lines of Credit 

A line of credit can be extended to an individual or business. Just like you can tap the equity in your home to finance a purchase, a bank can lend against the value of an asset or property in your business as collateral to help finance your operations. Lines of credit are usually more fluid since you may not need to use the maximum of what you are allowed to borrow. You pay Interest only on the amount drawn. Repayments can be made immediately or over a specified period of time. To access this kind of loan you must have a good credit rating or a good relationship with the bank. 

Mortgage Loans 

This is a debt instrument in which a loan is extended to you for purchase of real estate property for which the bank retains a lien on the specified real estate property until the debt is fully repaid. A mortgage is used to make large real estate purchases without paying the entire value of the purchase up front. Over a period of many years, you repay the loan and interest, until the debt is fully repaid. If you default the bank may discretionary repossess the property to recover the amount accrued to you. 

Letters of Credit 

A letter of credit is a credit instrument mainly used in international trade to ensure that goods and services are shipped prior to receipt of payment . It is issued by the buyer's financial institution or bank(issuing bank) to the beneficiary's bank (confirming or accepting bank) to guarantee payment for the goods and services supplied for as long as the seller produces the documents specified in the letter of credit within a fixed time frame. The issuing bank assumes the buyer's obligation to pay off the seller for the goods and services supplied provided required documents are produced in a specific time frame. The buyer has the obligation to reimburse the issuing bank. Letters of credit are very useful in import and export trade where the are buyer and seller are far apart. 

Credit Card loans 

This is every shoppers 'friend'! We all like the convenience of carrying a 'plastic card' instead of chunks of cash for shopping and while on international travel (although still a few credit brands such as MasterCard, Visa, American Express, Optima, etc, are accepted internationally). Credit cards nowadays can be used literally to buy anything from an air conditioner to a pepsi at a convenience store. Although there is perceived convenience, you incur an obligation to repay the issuer of your credit card each time you hand your card to a salesman at a convenience store for billing. Some companies like American express require you to pay off all the debt in one month, while others like MasterCard,Visa and Optima offer revolving credit in which only a minimum monthly payment is made and the rest of your debt is carried forward. A finance charge is levied on the carried balance. It is prudent to limit usage of your credit and pay off all your debt each month to avoid interest charges. To learn more about credit cards please read on. 

Bank Overdraft 

If you overdraw your account below zero balance, your account is said to be overdrawn. Most banks do not provide this service explicitly to all customers. You have to make prior arrangement with your bank and agree upon the maximum amount your account can be overdrawn and the interest charged thereof. In the event you exceed the limit, higher interest rates may apply.