Credit, Loans and Borrowing

Every company, irrespective of the profit it makes, maintains a secure credit line to ensure that the finances are not imbalanced. The credit line is maintained to ensure that the company has a separate account to fund its ongoing programs. The credit could be taken to employ it as working capital or to fund an acquisition of a rival company or any company that could add to the existing company’s product portfolio.

Credit is offered under various schemes depending on the choice of the borrower. The character of the borrower could be a business firm operated by partners or individual proprietors of companies. The interest rate on the loan offered differs and is dependent on the nature of the company. If the company has adequate fixed assets such as building, land and machinery, the interest component could be lower. It is so because the company will be in a position to leverage the fixed assets in case it fails to find sources to repay the credit. However, the loans given to services organizations, which have nothing to depend upon other than proven track record and human resources, will be steep, slightly on the higher side. This is so because the company has very little to offer in terms of collateral for the loan being borrowed. Besides, the credit given to services organization is less and of short term range. Since the interest rate is higher, the repayment period is also short. The loan will be recovered at the earliest using the equated monthly installment scheme. If there is no collateral to be offered to the banks and financial institutions, credit flow will be difficult. The credit line depends on the performance of the company and the repayment being made from time to time.

Some companies bank on the credit line to run their day to day operations. For instance, a small or medium enterprises, would have borrowed a small sum as loan towards the working capital. The fund could be utilized towards purchasing the raw material required to evolve the product. Once the product is out of the assembly line and reaches the retail stores, the credit repayment would start then. Then another loan is borrowed. If the credit line, including the repayments, is done in time, a company can maintain a sound credit line. By adopting this approach, a company can come out of the credit line and bank on internal accruals of the period to run the company for the rest of the period. It can also enter the profit making mode in the process.

If the credit line is not clear, there is the fear of the company entering the bankruptcy stage, which is bad for any performing firm. In order to ensure that a company does not enter the bankruptcy stage, adequate safeguards are required. It includes securing the funds through low interest rates and deploying them sensibly. By doing so, companies can make sure that there is appropriate return on the investment.

This entry was posted on Monday, January 28th, 2008 and is filed under Credit. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.
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How Credit Scores Affect Mortgage Applications

With a good credit score an applicant will receive prompt response from many lenders, all of them offering low interest rates and low down payment options. The loan amount offered also may be high. On the contrary a low credit score would result in a lot of rejection from various mortgage financers. Because creditors wouldn’t come forward easily to give credit to individuals that have a history of difficulty in repaying existing loans. After all, creditors take risk when they finance mortgages against the credit history of a debtor. Naturally, they will wish to remain on the safe side and pick up less risky ones that have good credit histories. A good credit score means less chance of missing on payments and therefore less risky.

But there are some real risk takers that will come forward to finance mortgages for individuals with bad credit scores. They would charge high down payments and always high interest rates though. They may also fix additional charges for every little paper work and may charge high closing rates. The loan amount offered will also be considerably less. The individual with poor credit scores will not have much choice but to accept the terms and conditions as there are no other alternatives. This is a tight situation and to avoid this you must have a good credit score.

People with bad credit may fall in to the trap of ’secured loans’. Secured loans are the ones where the loan applicant offers an asset as collateral security. The lender becomes secure about the repayment of the loan and not the borrower. Securing a loan with bad credit score becomes easy only when the applicant is willing to offer some asset as collateral security. This again is a very dangerous situation where an individual runs the risk of losing his entire collateral asset in case of failing to pay the loan installments in time. An individual should always avoid such type of a loan.

Resort properties normally require large amounts of finance which a person with bad credit may find it difficult to obtain. So it is always advisable to keep your credit score high. Incase the credit score becomes low due to unavoidable financial reasons it can be improved upon. There is no need to lose hope simply because a person has a low credit score. If the property that he intends to buy has good equity he should go out and try to obtain finances for it. There are many sub prime lenders willing to offer their services.

For a review of your credit report as it relates to a mortgage loan and a consultation on the best loans available to you, give us a confidential, no obligation and no cost call.