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Medium & Long-term Loans (Uses (Easy for bank to monitor, Borrower…
Medium & Long-term Loans
Uses
Easy for bank to monitor
Borrower & banks know amounts paid/received
Bank can obtain written safeguards
Customer doesn't face threat of having to pay loan back on demand
Term
Length of loan
Internal guidelines
Goverment regulations
Negotiations between borrower & bank
Loan Repayment Profile
Bullet
All loan princple repaid at end of loan period
Balloon
Most of loan principal repaid at end of period
Straight repayment loan/Amortising
Loan principal repaid gradually, regular payments consist of interest & some of loan principal
Loan Interest
Fixed throughout loan period
Variable, depending on market condition
Loan Covenants
Negative
Borrower must not do something
Quantitative
Limits on borrower's financial position
Positive
Borrower must do something
Cost
Interest
Arrangement fee to bank
Commitment fees
Legal costs