slike bài giảng quản trị ngân hàng chương 6 lending to business and pricing business loans

LENDING TO BUSINESS FIRMS AND PRICING BUSINESS LOANS Chapter 6 Key topics 1. Types of business loans: short- and long-term 2. Analyzing business loan requests 3. Collateral and contingent liabilities 4. Sources and uses of business funds 5. Pricing business loans 6. Customer profitability analysis (CPA) 17-2 Short term business loans 1. Self-liquidating inventory loans:  used to finance the purchase of inventory, taking the advantage of cash cycle in a business firm  Demand for traditional inventory loans is on the decline due to the development of the JIT (just in time) and supply chain management techniques 17-3 Self-liquidating inventory loans: Cash cycle… 1. Cash is spent to acquire inventory 2. Goods are produced or shelved and listed for sale 3. Sales are made (often on credit) 4. The cash received is used to repay the self- liquidating loan 17-4 Short term business loans 2. Working capital loans: closest to self-liquidating loans  Bank can set up a credit line (max funding need) in a certain short period (a few months)  Loans can be renewed provided that the borrower pay off all significant portion of the loan before the renewal  Loans are secured by account receivables, pledges of inventory  Borrower has to pay floating interest rate on disbursed amount & a commitment fee is charged on unused credit line.  Compensating deposit balances may be required. 17-5 Short term business loans 3. Interim construction loans: support the construction of homes, apartments, office buildings, etc.  Fund supplied to hire workers, lease construction equipments, purchase building materials & develop land  The loan is paid off with a longer-term mortgage loan issued by another lender  “Mini-permanent loan” providing fund for the construction and early operation of a project in 5-7 years 17-6 Short term business loans 4. Security dealer financing:  short-term (overnight to few days) financing new securities purchase backed by the dealers’ holdings of government securities as collateral  Can be extended to investment banking firm in underwriting new securities issued by the government or firms  Can be lent directly to businesses and individuals in buying stocks, bonds, options, etc.  Margin requirements are enforced (≤ 50% of acquired securities) 17-7 Short term business loans 5. Retailer and Equipment financing:  Banks finance receivables that dealers selling automobiles, home appliances, furniture, business equipment,… take on they write installment contracts to cover customer purchase  Contracts are purchased by lenders at an interest rate varying with the borrower risk, collateral quality and loan terms  “Floor planning”: lender finances the dealer’s goods purchase from manufacturer and be paid as goods are sold 17-8 Short term business loans 5. Asset-based financing:  Credit secured by the shorter-term assets of a firm that are expected to roll over into cash in the future  Lender commits funds against a specific % of book value of outstanding receivables or inventory  The borrower retains title to the asset pledged in most cases  Factoring: lender takes on responsibility of collecting receivables. Due to higher risk → higher discount rate and loan accounts for a smaller fraction of receivable book value 17-9 Short term business loans 5. Asset-based financing:  Credit secured by the shorter-term assets of a firm that are expected to roll over into cash in the future  Lender commits funds against a specific % of book value of outstanding receivables or inventory  The borrower retains title to the asset pledged in most cases  Factoring: lender takes on responsibility of collecting receivables. Due to higher risk → higher discount rate and loan accounts for a smaller fraction of receivable book value 17-10 [...]... above LIBOR) 17-12 Long-term business loans 1 2 3 4 • Term loans Revolving credit lines Project loans Loans to support acquisitions of other business firms Question: What are the essential differences between various short- and long-term business loans? 17-13 Term loans Term loans are designed to fund long-term business investment (equipment or construction) 1 2 3 4 5 6 7 A lump-sum loan is approved...17-11 Short term business loans 6 Syndicated loans (SNCs):  Loans package extended to a corporation by a lender group  Lender aims to reduce risk of large loans and earn fee income (facility fee to open credit line or commitment fee to keep credit available)  Many SNC loans are traded in the secondary (resale) market carrying interest rate... Though business loans are usually considered among the safest types (low default rate), these loans:  average much larger in dollar volume than other loans → excessive risk of loss and, if a substantial number of loans fail, can lead to failure  business loans are usually much more complex financial deals than most other kinds of loans, requiring larger numbers of personnel with special skills and knowledge... due to higher risk 17-18 Loans to support firm acquisitions  Loans to finance mergers/acquisitions of businesses  Most noted: LBOs (leveraged buyouts)  Firm purchased is financed heavily by debt in the belief that revenues can be raised higher than debt costs  Frequently optimistic assumptions have turned to be wrong and loans have turned delinquent Quick quiz 1 How business loans are classified in... repayment for business loans  The borrower’s profits or cash flows  Business assets pledged as collateral  Strong balance sheet with ample marketable assets and net worth  Guarantees given by businesses 17-25 Analyzing business loan applications  Common size ratios of customer over time  Financial ratio analysis of customer’s financial statements  Current and pro forma sources and uses of funds... delinquent Quick quiz 1 How business loans are classified in Vietnam? 2 What are the essential differences between various short- and long-term business loans? 3 What special problems does business lending present to the management of a business lending institution? Loan types (Decision 162 7/2001/QD-NHNN) 1- Single loan (Cho vay từng lần): short- &long-term 2- Credit line loan (Cho vay theo hạn mức tín dụng):... without specific collateral and maybe short-term or cover a period as long as 5 years Useful when firms are uncertain about timing of future cash flow and borrowing need magnitude Help even out fluctuations in business cycle Loan commitment fee is charged on unused portion of credit line or entire credit amount available 17- 16 Project loans   The most risky of all business loans to finance fixed asset... from business earnings Payment is scheduled based on firm’s cashflow cycle Collateralization is made by fixed assets owned either by the borrower or the guanrantee Interest rate is either fixed or floated and higher than short-term rate due to higher risk “Bullet loan”: interest is paid periodically and no principal is made till maturity date Term loans: attention should be paid to 1 2 3 4 5 6 7 8... consumers 6- Stanby credit line loan (Cho vay hạn mức tín dụng dự phòng): short-term 7- Credit card loan (Cho vay thông qua nghiệp vụ phát hành và thanh to n thẻ tín dụng): short-term 8- Overdraft loan (Cho vay theo hạn mức thấu chi): short-term Differences between short- & long-term business loans Long - term vs short-term loans:  large volume  long term  high default risk Problems of business loans. .. construction designed to generate revenue in future (oil refineries, power plants, harbor facilities…) Risks are large and numerous, due to      Large funding is involved Project maybe delayed caused by weather or material shortage Laws and regulations in the project location are negatively changed Interest rate change adversely affects the ability to pay Loans are granted to several companies . LENDING TO BUSINESS FIRMS AND PRICING BUSINESS LOANS Chapter 6 Key topics 1. Types of business loans: short- and long-term 2. Analyzing business loan requests 3. Collateral and contingent. 4. Sources and uses of business funds 5. Pricing business loans 6. Customer profitability analysis (CPA) 17-2 Short term business loans 1. Self-liquidating inventory loans:  used to finance. term business loans 6. Syndicated loans (SNCs):  Loans package extended to a corporation by a lender group  Lender aims to reduce risk of large loans and earn fee income (facility fee to open