Overdraft Facility·

short-term finance facility
· secured by first mortgage over real estate or a debenture charge (first priority payment if goods are sold) over the assets or the business and personal guarantee
· interest rate is between 3-5% above base lending rate

Commercial Loans

· long-term debts
· fixed or variable interest rate can be negotiated
· 3-15 year term
· interest rate 3-5% above base lending rate
· lending institutions require 3 years financial statements

Commercial Bill Facility

· is a contractual relationship whereby you purchase the use of a sum of money for an agreed period to time usually 90 or 180 days (other periods are possible) for a cost of interest + charges
· commercial bills are usually for sums in excess of $50,000
· if a bill line is established the contracts can be rolled over or re-negotiated) every 90 or 180 days

Commercial Property Loans

· loans provided to purchase commercial property (the percentage that the lender is willing to finance) depends on their risk assessment associated with the venture
· the lending institution would require 3 years financial statements

Fully Drawn Advance

· the lending institution will provide that money for a period between 6 months and 10 years
· minimum amount $10,000
· interest rates are usually variable

Bridging Finance

· usually used as short-term finance to match settlements
· 75% of the bank’s valuation
· interest usually higher than base rates
· interest can be capitalised

Developmental Loans

· real estate developers utilise this type of loan for building properties for sale
· title to the properties under construction and evidence of the value of work in progress is used as security
· the percentage lent is frequently discounted due to the oversupply in this market

Hire Purchase

· ownership of the goods passes to the purchaser a the time when final payment is made

Debt Factoring

· the financier buys the clients sales invoices at a discount and then collects the invoiced amount from the client’s customers

Home Equity Loan

· minimum loan value $20,000
· repayments must be less than or equal to 33% of borrower’s gross income
· the debt would be secured against the property of the borrower
· lending institutions require 2 year financial statements

Leasing Finance

· often used to purchase plant, equipment and motor vehicle/s
· types of leases - a finance lease and an operating lease:

1. Leasing - Finance lease· this style of lease transfers from the lessor to the lessee substantially all the risks and benefits of ownership of the leased property
· often used to buy plant, equipment and motor vehicle/s
· regular fixed amount payments, leaving a final residual payment at the end of the lease period
· it is recommended to compare discounted cashflows to evaluate whether to lease or purchase

2. Leasing - Operating Lease· this is a lease where the lessor retains substantially all the risks and benefits or ownership of the leased property - ie the lease of a shop or factory

Letter of Credit

· normally supplied by banks to ensure that trade between a supplier and a purchaser can transpire. The bank ensures the suppliers are paid from the purchaser’s bank account. This transaction is often used by importers and exporters