BUSINESS BORROWINGS

CHOLIE S. MONSANTO, MBA

We can thus summarize the reason for the raising of finance by
business as: (I) a temporary imbalance between cash receipts and
payments; (2) the purchase of long-term assets; and (3) working capital
• What is borrowing in business?
When we talk about business borrowing here, we are concentrating on
the taking out of debt, rather than selling equity in the business
Common types of borrowing include:
• Mortgages.
• Personal loans.
• Credit card advances.
• Title loans.
• Payday loans.
• Bank overdrafts.
What is a mortgage in simple words?
• The term “mortgage” refers to a loan used to purchase or maintain a home,
land, or other types of real estate. The borrower agrees to pay the lender
over time, typically in a series of regular payments that are divided into
principal and interest. The property serves as collateral to secure the loan.
Why is it called mortgage?
• From where did the word “mortgage” come? The word comes from Old
French morgage, literally “dead pledge,” from mort (dead) and gage
(pledge). According to the online etymology dictionary, it is so
called because the deal dies when the debt is paid or when payment fails.
What do you mean by personal loan?
• Personal Loan is an unsecured credit provided by financial institutions
based on criteria like employment history, repayment capacity, income
level, profession and credit history. Personal Loan, which is also known as a
consumer loan is a multi-purpose loan, which you can use to meet any of
your immediate needs.
• What is personal loan and how does it work?
• Personal loans are a form of installment credit. Unlike a credit card, a
personal loan delivers a one-time payment of cash to borrowers. Then,
borrowers pay back that amount plus interest in regular, monthly
installments over the lifetime of the loan, known as its term.
What type of loan is a personal loan?
• Personal loans are a type of installment loan. That means you borrow a
fixed amount of money and pay it back with interest in monthly payments
over the life of the loan — which typically ranges from 12 to 84 months.
Once you've paid your loan in full, your account is closed.
What is the risk of a personal loan?
• your lender might have the right to take something that you own, such as
your car, if you have a secured loan. your lender can report a missed
payment to the credit bureaus, which could mean it will show up on
your credit history and could hurt your ability to get credit in the future.
A credit card cash advance is a withdrawal of cash from your credit card
account. Essentially, you're borrowing against your credit card to put
cash in your pocket. However, there are costs to taking a credit card cash
advance and, in some cases, limits on the amount you can withdraw.
What is a credit cash advance fee?
• A cash advance fee is a charge by the bank for using a credit card to
obtain cash. This fee can be stated in terms of a flat per-transaction fee
or a percentage of the amount of the cash advance.
A title loan is a type of secured loan where borrowers can use their
vehicle title as collateral. Borrowers who get title loans must allow a
lender to place a lien on their car title, and temporarily surrender the
hard copy of their vehicle title, in exchange for a loan amount.
What happens in case of cash credit advance?
• Cash Advance Fees

In the case of purchases charged to your credit card, your

outstanding amount will attract interest only if the full amount has
not been paid by the due date. However, unlike other credit
purchases, the cash advance will begin accruing interest from the day
the cash advance is made.
Do cash advances get paid off first?
• Since your advance begins accruing interest the same day you get
your cash, start repaying the amount you borrow as soon as
possible. If you take out a $200 cash advance, aim to pay that amount
in full—or as much as possible—on top of your minimum payment
A title loan is a type of secured loan where borrowers can use their
vehicle title as collateral. Borrowers who get title loans must allow a
lender to place a lien on their car title, and temporarily surrender the
hard copy of their vehicle title, in exchange for a loan amount.
While there is no set definition of a payday loan, it is usually a short-
term, high cost loan, generally for $500 or less, that is typically due
on your next payday. Depending on your state law, payday loans may
be available through storefront payday lenders or online.
An overdraft is a loan provided by a bank that allows a customer to
pay for bills and other expenses when the account reaches zero. For
a fee, the bank provides a loan to the client in the event of an
unexpected charge or insufficient account balance.
What is the meaning of conventional mortgage?
• A conventional loan is any mortgage loan that is not insured or
guaranteed by the government (such as under Federal Housing
Administration, Department of Veterans Affairs, or Department of
Agriculture loan programs). Conventional loans can be conforming or
non-conforming.
•  Conventional loans, meanwhile, may not require mortgage
insurance with a large enough down payment. Choosing the best
loan option for you depends on your personal financial situation.
What is the difference between fixed rate and conventional mortgage?
• A "fixed-rate" mortgage comes with an interest rate that won't change
for the life of your home loan. A "conventional" (conforming) mortgage
is a loan that conforms to established guidelines for the size of the loan
and your financial situation.
A jumbo loan, or jumbo mortgage, is a home loan for an amount that
exceeds the "conforming loan limit" set on mortgages eligible for
purchase by Fannie Mae and Freddie Mac, the government-sponsored
enterprises (GSEs) that ultimately buy and administer most single-
family-home mortgages in the U.S.
Government-insured mortgages are sometimes referred to as
government-backed mortgages, but the definition is the same. It
means that the mortgage is backed by the government. The
government doesn't issue the mortgage or lend the money directly to
borrowers. The loan is originated (or funded) by a mortgage company.
• What does it mean to have an insured mortgage?
• An insured mortgage is a mortgage that's protected by mortgage
default insurance. The insurance protects the lender (not you, the
consumer) against losses in the event you stop making your mortgage
payments and default on your loan.
• An adjustable-rate mortgage (ARM) is a home loan with a variable
interest rate. With an ARM, the initial interest rate is fixed for a period of
time. After that, the interest rate applied on the outstanding balance
resets periodically, at yearly or even monthly intervals.
•
Why is an adjustment rate mortgage a bad idea?
• Adjustable-Rate Mortgage Drawbacks. Your loan payments may increase.
After the introductory interest period ends, and if market conditions
cause interest rates to rise, your monthly loan payments could increase.
This boost in interest may make it more difficult for you to afford your
mortgage payments
In simple words, the mortgagee is the lender, whereas the mortgagor is
the borrower. The mortgagor requires the secured loan. When
borrowing money from a bank, credit union, or and typically pledges
his/her property as collateral to the mortgagee until the loan and
associated interest payments are paid in full.
• What is mortgage and types?
• Mortgages are further classified as 1) Conventional mortgages 2) Jumbo
mortgages 3) Government-insured mortgages 4) Fixed-rate mortgages
5) Adjustable-rate mortgages. Now, based on these, there are further
loan type. Types of Mortgages in our country: Simple Mortgage
 Borrowing by Big Corporation
Big Corporations have to borrow money for working capital, because of
a temporary mismatch between receipts and payments, and for the
finance of capital expenditure for modernization and expansion to the
extent that such cannot be financed from internal cash flow.
 Borrowing by Local Authority
The local authorities also spend large sums on capital account (capital
expenditure) providing new school buildings, school-meal cooking
facilities, new roads and lights, and so on.
It is also worth noting that total current and capital expenditure by local
authorities (local government) was financed to the extent of about 50
per cent by central government.
The capitalloans made available to local authorities by central
government are nearly all received via the Public Works Loans Board
(P.W.L.B.)
 Borrowing by Central Government
 central government to have some very 1arge expenditure on other
services it supplies. Fairly obvious examples of such services are
defense costs, national insurance and health, and education not
administered by local government; there are many other examples as
well.
central government is 'short of money' and needs to raise further
finance, perhaps by a loan