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MODES OF BORROWING

SHORT TERMS:Running Finance:

It is an unsecured financing product issued by a financial institution


to its customers on daily basis in order to meet their daily needs.

It is a finance offerings by financial institutions against mortgages


and a credit facility established for a specific time limit at variable
interest rates.

Running finance is nothing but the finance offerings by financial


institutions against mortgages.

It works under the working capital finance. Specifically, the running


finance is a credit facility established for a specific time limit at
variable interest rates.

Bank Overdraft:

An overdraft is a loan arrangement between the borrower and the


bank whereby the bank extends the credit to a maximum amount
against which the customer can write cheque or make withdrawals.

It is the amount of money borrowed that exceeds the deposits.

An overdraft occurs when money is withdrawn from a bank account


and the available balance goes below zero. So, such facility offered
by a bank is called bank overdraft.

Overdraft is one sort of offering credit by the account providers, in


that withdrawals are permitted exceeding available balance of the
bank account. It is nothing but an over-drawing leading to a
negative balance.
The situation is more common with the credit card offerings by
the banks.

Cash Credit:

It is a short term cash loan to a company. A bank provides this type


of funding but only after the required security is given to secure the
loan.

Once the security has been given, the business that receives the
loan can continuously draw from the bank up to a certain specified
amount.

Loan against Pledge:

A delivery of personal property to a creditor as security for a debt or


for the performance of an act.

Pledge is also called as pawn or security interest, is a piece of


property used to secure financing.
It is any physical thing with liquid value. Thus the loan taken against
pledge is called as loan against pledge.
Example: A lender extending a loan to a borrower for the purchase
of a home will require the home as a pledge.

Loan Against Hypothecation:


The established practice of a borrower pledging an asset as
collateral for a loan, while retaining ownership of the assets and
enjoying the benefits. With hypothecation, the lender has the right
to seize the asset, if the borrower cannot service the loan as
stipulated by the terms in the loan agreement.
Example: mortgages
hypothecation.

are

the

most

common

example

of

Loan Against Mortgage:

A loan to finance the purchase of real estate, usually with specified


payment periods and interest rates. The borrower (mortgagor) gives
the lender (mortgagee) a lien on the property as collateral for the
loan.

A debt instrument, secured by the security of specified real estate


property, that the borrower is obliged to pay back with a
predetermined set of payments.

Mortgages are used by individuals and businesses to make large


real estate purchases without paying the entire value of the
purchase up front.

Over a period of many years, the borrower repays the loan, plus
interest, until he/she eventually owns the property free and clear.

It is a transfer of interest in specific immovable property.

It is a type of charge related to immovable property.

A security interest in a piece of real property, in exchange for the


extension of loan.

Discounting Commercial Papers:

An unsecured short-term debt instrument issued by a corporation,


typically for the financing of account receivable, inventories and
meeting short-term liabilities.

Maturities on commercial paper rarely range any longer than 270


days. The debt is usually issued at discount, reflecting prevailing
market interest rates.

A major benefit of commercial paper is that it does not need to be


registered with the Securities and Exchange Commission (SEC) as
long as it matures before nine months (270 days), making it a very
cost-effective means of financing. The proceeds from this type of
financing can only be used on current assets (inventories) and are
not allowed to be used on fixed assets, such as a new plant, without
SEC involvement.

Public Deposits

It refers to the deposits that are attained by the numerous large


and small firms from the public.

It is a source of fund for private and non-banking companies. The


interest on these deposits is more than the interest given by banks.
Public Deposit refers to the money received by a company
through deposit or loan collected from public, excluding the money
received in the form of shares and debentures.

LONG TERMS:Loan Against Mortgage:

It is a transfer of interest in specific immovable property. It is a type


of charge related to immovable property. A security interest in a
piece of real property, in exchange for the extension of loan. Loan
against such property is called as loan against mortgage.

Loan from DFI:

DFI stands for Development Finance Institution.


It occupy the space between public and private investment.
They are financial institution which provide finance to the private
sector for investment that promote development.
They are owned by the Governments of one or more developed
countries.

Loan from NBFCS:

NBFCs stands for Non-banking Financial Company.


These are financial institutions that provide banking services, but do
not hold a banking license.
They are not allowed to take deposits from the public. Nonetheless,
all operations of these institutions are still covered under banking
regulations.

Redeemable Capital

Redeemable capital includes any other security or obligation not


based on the interest other than an ordinary share of the company.

redeemable capital may provide for adopt or include in addition to


others,
(a) mode and basis of repayment by the company of the amount
invested in redeemable capital within a certain period of time;
(b) arrangement for sharing of profit and loss;
(c) Creation of a special reserve called the "participation reserve
by the company in the manner provided in the agreement for the
issue of participatory redeemable capital in which all providers of
such capital shall participate for interim and final adjustment on the
maturity date in accordance with the terms and conditions of such
agreement.
A company may by public offer or upon terms and conditions
contained in an agreement in writing, issue to one or more
scheduled banks, financial institutions or such other persons either
severally, jointly or through their syndicate, any instrument in the
nature of redeemable capital in any or several forms in
consideration of any funds, moneys or accommodations received or
to be received by the company, whether in cash or against any
promise, guarantee, undertaking or indemnity issued for the benefit
of the company.

Redeemable Debenture:

It is a document issued by a company as an evidence of its debt. It


is a security issued or allotted to the investor under the seal of the
company. It contains a contract for the repayment of a debt and the
interest thereon at a specified rate.

Redeemable TFCs:

TFCs stands for Term finance Certificate. It is a corporate debt


instrument issued by companies to generate long and medium
terms fund. Corporate TFCs offer institutional investors, in
particular provident funds, pension funds and insurance companies,
with a viable high yield alternative to the bank deposits, They are
also an essential complement to risk free, lower yielding
Government bonds.