Loans for construction purposes which are known as construction loans.Loans for the purchase of equipment which are known as equipment financing.Loans for the purchase of commercial real estate which are known as CRE loans.There can also be further sub-classifications based on purpose which include: For example, Line of Credit, OD, CC, BD, LC, BG etc. Opex: If the loan is given for day-to-day operations of the business i.e., to fund the current assets or short-term assets of the business entity i.e, opex, it is known as working capital. Purpose of loanĬapex: If the loan is given for acquisition of fixed assets or long-term assets i.e, capex, it is called a term loan (including short term, medium term, and long term) For example, Letter of Credit (LC), Bank Guarantee (BG), etc. Fund outlay is a contingent event here that may occur at the time of default. Non-fund based – In which there is no upfront outflow of funds by the bank, and only certain paper commitments and binding contracts are entered into. For example – term loans, OD, CC, LAP, HL auto loans, etc. Upfront outflow of the banking fundsįund based – In which there is a direct dispensation of funds by the lender to the borrower and the bank needs to keep the funds available based on the time duration of facilities. The different types of commercial lending depend on: 1. Investment in Plant & Machinery/Equipment.Whereas in India, the classification is defined in the MSMED Act (Ministry of Micro, Small & Medium Enterprises) and based on two parameters For example, in Europe, the categorisation is based on the strength of the staff, annual turnover, and the annual balance sheet size. ![]() The definition of these entities may vary from country to country. ….and more based on region-specific norms Classification of borrower entity based on the enterprise size: – Hence conventionally, the borrower here is a “non-individual” entity as against an “individual” in the case of retail lending. It is a financing arrangement between a business and a financial institution. ![]()
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