The loan, also called as advance or credit, is generally provided at a cost, referred to as interest on the debt, which provides an incentive for the lender to engage in the loan.
All businesses require some form of Bank financing. An essential part of beginning or expanding a business is raising sufficient capital. Be it a new product launch or the time of recession, the expenditures can't wait till the payments come. In such situations, bank loans alleviate your way and open the world of new business heights for you.
Bank Loan / Credit / Advance
Lending money is one of the two major activities of any Bank. Banks accept deposit from public for safe-keeping and pay interest to them. They then lend this money to earn interest on this money.
A bank can lend out only a certain proportion of its deposits, since some part of deposits have to be statutorily maintained as Cash Reserve Ratio (CRR) - deposits with Reserve Bank of India and an additional part has to be used for making investment in prescribed securities (Statutory Liquidity Ratio or SLR requirement).
Banks have the option of having more cash reserves than CRR requirement and invest more in SLR securities than they are required to. Further, banks also have the option to invest in non-SLR securities.
Bank Finance loans can be termed as a popular category of loans and advances offered by various banks to self employed professionals, firms or corporate and individuals. The quantum and interest of loan may vary from bank to bank. Generally, no security is required for bank loan up to a certain limit. Above that limit, the banks may require a collateral security or a percentage of business loans as margin, in the form of fixed deposit in the bank.