INTERMEDIATE TERM FINANCING

-REFERSTO BORROWINGS WITH

REPAYMENT SCHEDULES OF MORE THAN
ONE YEAR BUT LESS THAN 10 YEARS.
ADVANTAGES

 it provides a useful alternatives

 It provides a source of funding
 tax advantages are sometimes derived from the exercised
 convenience in repayment
 flexibility
DISADVANTAGES

 Comparatively high-cost than short-term

 the lender collect money by selling borrower’s collateral
security
 Restrictions over the borrower
 keeping a portion of loan
 it is not easy to get loan for financially weak, small, and new
businesses.
TERM LOANS BY PRIVATE
FINANCIAL INSTITUTIONS

• is provided by private commercial banks,

finance companies, factors, insurance, and
pre-need companies.
TERM LENDING BY PRIVATE
COMMERCIAL BANKS
-private commercial banks (PCBs)
-PCBs provide easy access to intermediate term credit.
Examples:
 Philippine National Bank
 Metropolitan bank and Trust Company
TERM LOAN DEFINED

is a bank advance for a specific period (normally

-

1-10 years) repaid with interest, usually by regular

periodic payments.
 THERE ARE THREE TYPES OF TERM
LOANS
The Straight term loan
-is granted to finance fixed assets
-the limit for straight term loan is 10 years
The Revolving credit
- Is a legally line of credit, normally extended for two or three years time
periods.
- This type of term loan funds working capital requirements
The Evergreen credit
-is a revolving credit arrangement without a stated maturity
-the majority of this term loan is then determined by economic life of borrower’s
equipment
TERM LOAN AGREEMENT
Formal loan agreements are required in the granting
of term loans.
The loan agreements include:
• basic feature of the loan
• repayment schedules
• interest rates
• maximum commitments
 THE MORE COMMON PROVISIONS OF A
LOAN AGREEMENT ARE THE FOLLOWING:
1.The borrower is required to maintain a certain amount of
working capital or a given current ratio.
2.The borrower is required to furnish the Bank of the
creditor with audited annual financial statements and
detailed direct quarterly or monthly statements.
3.The borrower is prohibited to sell or dispose his
business properly, except inventories.
4.The borrower is required to provide ample insurance
coverage to his business properties and key employees.
5. Restrictions are imposed to the borrower regarding
cash dividends and a ceiling on officers’ salaries
imposed.
6. A restriction is imposed on the borrower regarding the
expansion of fixed assets beyond the amount of the term
loan.
7. The borrower is prohibited from incurring additional
long term debt or additional lease obligations.
8. The borrower is not allowed to repurchase the
company's own stock.
REPAYMENT OF TERM LOANS

-depends upon the nature of the business of the

borrower.

Repayment programs for term loans vary. They

consist of the following:
 1. EQUAL PRINCIPAL PAYMENTS
Year Outstanding Interest due Repayment Total
Principal at at end of of principal payment at
beginning of year at end of end of year
year year

• the loan is repaid in equal principal

1

2
₱100,000

90,000
₱8,000

7,200
₱10,000

10,000
₱18,000

17,2000
amounts, but the installments are 3 80,000 6,400 10,000 16,400

uneven due to the largest interest 4 70,000 5,600 10,000 15,600

payment in the first year. 5 60,000 4,800 10,000 14,800

6 50,000 4,000 10,000 14,000

7 40,000 3,200 10,000 13,200

8 30,000 2,400 10,000 12,400

9 20,000 1,600 10,000 11,600

10 10,000 800 10,000 10,800

 2. EQUAL AMORTIZATION
Year Outstanding Interest due Repayment Total
Principal at at end of of principal payment at
beginning of year at end of end of year
• the loan is repaid in year year
equal installments, 1 ₱ 100,000 ₱ 8000 ₱ 6,903.00 7,455.24 ₱ 14,903.00
starting with the 2 93,097.00 7,447.76 8,051.66 14,903.00

smallest principal 3 85,641.76 6,851.34 8,695.80 14,903.00

amount in the first year 4 77,590.10 6,207.20 9,391.46 14,903.00

5 68,894.30 5,511.54 10,142.78 14,903.00

and increasing
6 59,502.84 4,760.32 10,954.20 14,903.00
gradually over the 7 49,360.06 3,948.80 11,830.54 14,903.00

years, with decreasing 8 38,405.86 3,073.46 12,776.98 14,903.00

interest payments. 9 26,575.32 2,126.02 13,798.34 14,903.00

10 13,798.34 1,103.86 14,903.00

 3. BALLOON PAYMENT
Year Outstanding Interest Repayment Total
Principal at due at end of payment at
beginning of of year principal end of year
year at end of
year
• under this repayment 1

2
₱100,000.00

94,000.00
₱8,000.00

7,520.00
₱6,000.00

6,480.00
₱14,000.00

14,000.00

program. The loan is 3 87,520.00 7,001.60 6,998.40 14,000.00

repaid in equal 4 80,521.60 6,441.72 7,558.28 14,000.00

5 72,963.32 5,837.06 8,162.94 14,000.00

installments made at 6 64,800.38 5,184.03 8,815.97 14,000.00

the maturity date 7 55,984.41 4,478.75 9,521.25 14,000.00

8 46,463.16 3,717.05 10,282.95 14,000.00

9 36,180.21 2,894.41 11,105.59 14,000.00

10 25,074.62 2,005.96 25,074.62 27,080.58

• A variation of the deferred payment plan allows the borrower a grace
period of 1 to 7 years during which the payment of the principal and
interest is deffered.
Year Outstanding Interest due Repayment Total
Principal at at end of of principal payment at
beginning of year at end of end of year
year year
1 ₱100,000 ₱8,000.00 - -

2 108,000.00 8640.00 - -

3 116,640.00 9331.20 - -

4 125,971.20 10,077.69 - -

5 136,048.89 10,883.91 ₱18,616.09 ₱29,500.00

6 117,432.80 9394.62 20,105.38 29,500.00

7 97,327.42 7786.19 21,713.81 29,500.00

8 75,613.61 6049.08 23,450.92 29,500.00

9 52,162.69 4173.01 25,326.99 29,500.00

10 26,835.70 2146.85 26,835.70 28,982.55

TERM LENDING BY INSURANCE
COMPANY

-Insurance are crucial sources of term loan. This

premium generated constitute advances to the insurance
companies for periods vary from 6 months to 5 or more
years.
This insurance code specifies the areas of investments
allowed for insurance companies. Intermediate term
lending is included in the provision.
 TERM LENDING BY FINANCE COMPANIES
Business firm obtain intermediate or medium-term financing
from finance companies. Funds may be derived from
borrowing is used for:
1. Additional working capital;
2. Purchase of machinery and equipment;
3. Construction of additional plant facilities;
4. Retirement of maturing securites;
5. Buying out partners and stockholders; and
6. Purchase of other companies.
 Finance companies developed special
installment financial plans for firms acquiring
machinery and equipment. It required a down
payment and balance is paid to the finance
company in installment designed to fit the
needs and depreciation schedule of the firm
buying the machinery and equipment.
 TERM LOANS BY GOVERNMENT
The government offer loans programs through
different department that support individuals,
communities and businesses according to their
varied and unique needs.
Individuals and small businesses with little or no
seed capital or collateral may find conditions for a
market rate loan unaffordable.
THE CAPITAL MARKET

• Capital Market
- deals with longer-term loanable funds

• Money Market
- deals with short-term funds
COMPONENTS OF THE CAPITAL
MARKET
3 Parts of the Capital Market

1. Bond Market ;

2. The Mortgage Market

3. The Stack Market

BOND MARKET

- market for debt instruments

- trading is primarily done over-the-counter
- most are owned by and traded among the large
financial institutions.
MORTGAGE MARKET

- deals with loans on industrial, commercial,

and industrial real estate, and on farmland.
STOCK MARKET

- where the common and preferred stock issued by

corporations are traded.
Two components:
1. The organized exchange
2. The less formal over-the-counter markets.
THE COST OF CAPITAL

•the cost of capital serves as a critical tool for

assessing the feasibility, profitability, and
efficiency of financial decisions within a
company, helping to guide resource allocation
and strategic direction.
BASIC TERMS DEFINED AND
DISCUSSED
•corporate securities, primary market, and
secondary market
CORPORATE SECURITIES

• Securities- it refers to income yielding paper traded on the Stock Exchange

or secondary markets

• There are three main types of security:

1. fixed interest- consisting of the debentures, preferred stocks, and bonds,
including all government securities.
2. Variable interest-consisting of common stocks and bonds, as well as
preferred stocks with participating feature
3. others-like bills of exchange and insurance policies
Primary market
-when securities are issued and offered by the corporation
for the first time to the public
Secondary market
-refers to the market dealing with the resale and purchase
of securities or other titles to property or commodities.
Securities offering in the capital market
-firms may obtain long-term capital funds through security
offerings in the capital market.
THE MARKETING OF SECURITIES

-corporate securities are distributed in two

methods:
1. By primary distribution
- When the firm's securities are sold for the first time to the
public. It can be achieved through any of the following
- the investment bankers
-private placement
-individual investors
2. By secondary distribution
-when the first buyers of securities resell their interest to other
parties. It can also be achieved through the following;
-stock exchanges
-over-the-counter trading
THE INVESTMENT BANKER
• - any person engaged in the business of underwriting securities
issued by other persons or firms.

It is expected to perform the following functions:

1. to investigate the corporation's financial conditions and needs
2. to advise the corporation considering new issues of securities
3. the originate new issues
4. the arrange for syndicate distribution
5. to underwrite securities
6. the market securities
PRIVATE PLACEMENT

-thisterm refers to the selling of securities by

private negotiation directly to insurance
companies, commercial banks, personal funds,
large scale corporation investors, and wealthy
investors individual investors
INDIVIDUAL INVESTORS
-Individuals who either have excess funds, or
willing to forgo or postpone a part of his ability
to spend, constitute A portion of the capital
market.
STOCK EXCHANGE AND OVER-
THE-COUNTER TRADING.

this is where the secondary marketing of

-

securities is done
 UNDERWRITING AND SELLING
THE FIRM’S SECURITIES
• the underwriting of securities may be done using any of
the following methods:
1.Negotiated underwriting
2.Competitive underwriting
3.Commission-Best Efforts Basis
4.Direct Sale
5.Firm Commitment Bases
THE SECURITIES MARKET

• After the primarily distribution of securities, the

concern shifts to secondary distribution. The
securities market is conduct for distribution of
outstanding issues and the role it plays is very
important.
THE COMPONENTS OF THE
SECURITIES MARKET

1. auction-type markets, such as the

international and national stock exchanges,
2. negotiation-type markets, such as the over-
the-counter market.
THE STOCK EXCHANGE

• The stock exchange is a market in which securities are

bought and sold. There are stock exchanges in most capital
cities of the world, as well as in the largest provincial cities.
The New York Stock Exchange (NYSE) is the largest stock
exchange in the world in terms of US dollar value traded. The
Philippine stock market is imported to be the world's
smallest, with the exception of Indonesia.
 OVER-THE-COUNTER (OTC)
MARKET
Securities traded outside of the organized exchanges
take place in the over-the-counter or off-board market.
THE MIDDLEMEN OF SECURITIES

• When buying or selling securities, the services of the following

middlemen will, most often, be required:

• 1. broker,
• 2. dealer,
• 3. salesman; and
• 4. associated person of a broker or dealer.
 REGISTRATION OF BROKERS, SALESMEN
SALESMAN AND ASSOCIATED PERSONS
• The Securities Regulation Code enumerates the following
procedures and requirements:
1. No person may engage in buying or selling securities in the
Philippines unless registered with the Securities and Exchange
Commission.
2. Unregistered salespeople or associates cannot be employed by any
registered broker, dealer, or issue.
3. The Commission may exempt certain individuals or classes from
receiving requirements if it is in the public interest and protects investors.
4. The Commission shall establish rules for registration qualifications
for each applicant category. These rules may include a requirement
of registration as a condition.
a. The applicant must pass a written examination for natural persons
b. meet minimum net capital requirements for brokers or dealers,
provide a bond or security; and
c. file a written consent for service of process outside the Philippines.
5. A broker or dealer can apply for registration by submitting a written
application with prescribed information and documents to the
Commission.
6. A salesman can register with a broker or dealer through a written
application, signed by the broker or issuer, and their compensation is
determined by the issuer's securities sales.
7. Application filed shall be accompanied by a registration fee and such
reasonable amount prescribed by the Commission.

8. The Commission will grant or deny registration within thirty days of

receiving an application.

9. The Commission's Securities Market Professionals register will contain

names, addresses, and orders for brokers, dealers, associated persons,
or salesmen, accessible for public inspection.

10. Every registered person must report any changes to a broker or

dealer's salespeople, connected people, or owners to the Commission to
maintain accurate registration applications.
11. The Commission requires registered individuals to pay an annual fee,
as prescribed by the Commission, at a reasonable time.
12. Salesman lose affiliation to licensed brokers or
dealers, leading to registration termination,
commission, and separation notice.
TRADING IN THE SECURITIES MARKET
• Trading in the exchange market are generally characterized by
the following:
1. Exchange transactions are carried out on the floor of the exchange
by its members on an agency basis;
2. The facilitator of exchange in the stock market is called a broker and
is paid a commission;
3. A transaction in an exchange is exposed to the public, less selling
effort is required; and
4. Transaction records are typically made available to exchange
members, professional traders, and the public immediately .
OTC TRANSACTIONS ARE
CHARACTERIZED BY THE FOLLOWING:
1. The dealers who buy the securities offered for sale act as principals;

2. The facilitator of exchange in the OTC market is called a dealer and

earns his income by selling at the mark-up;

3. More selling effort is required in stimulating OTC transactions; and

4. Big and ask prices are made available to interested parties.

• The selling price and the sales volume are not necessarily reported.
• Stock exchange transactions involve auctions, while OTC markets
involve electronic negotiation between buyers and sellers, with the
highest bidder at the top.
PRICES OF STUFF AND VOLUME OF TRADING

• Stock prices and trading volume in the

securities market fluctuate based on supply
and demand, with issuers setting prices and
investors' buying intentions influencing daily
stock prices.
THE SECURITIES AND EXCHANGE
COMMISSION (SEC)

• The Securities and Exchange Commission

(SEC) was established on October 2, 1939,
through the Securities Act (Common Act No.
83) to regulate the local stock market,
addressing the need for oversight during a
stock market boom.
TRADING SCHEDULE AT PSE

• Trading on the Philippine Stock Exchange (PSE)

occurs daily, except on Saturdays, Sundays, legal
holidays, and when the Bangko Sentral ng Pilipinas
(BSP) Clearing Office is closed.
UNIT OF TRADING

• Shares are traded in fixed minimum amounts known

as "board lots." The size of these lots varies
depending on the stock's price, ranging from 10 to 1
million shares.
METHOD OF TRADING

• The method of transaction is a double auction

market between a buyer and a seller who are
represented by stockholders.
THE SECURITIES REGULATION CODE

• Republic Act Number 8799, the Securities

Regulation Code (SRC), is the legal framework
governing securities trading in the Philippines.