Refinancing may refer to the replacement of an existing debt obligation with another

debt obligation under different terms. The terms and conditions of refinancing may
vary widely by country, province, or state, based on several economic factors such
as, inherent risk, projected risk, political stability of a nation, currency stability,
banking regulations, borrower's credit worthiness, and credit rating of a nation. In
many industrialized nations, a common form of refinancing is for a place of primary
residency mortgage.
If the replacement of debt occurs under financial distress, refinancing might be
referred to as debt restructuring.
A loan (debt) might be refinanced for various reasons:
1. To take advantage of a better interest rate (a reduced monthly payment or a
reduced term)
2. To consolidate other debt(s) into one loan (a potentially longer/shorter term
contingent on interest rate differential and fees)
3. To reduce the monthly repayment amount (often for a longer term, contingent
on interest rate differential and fees)
4. To reduce or alter risk (e.g. switching from a variable-rate to a fixed-rate loan)
5. To free up cash (often for a longer term, contingent on interest rate differential
and fees)
Definition

Paying off an existing loan with the proceeds from a new loan, usually of
the same size, and using the same property as collateral. In order to decide
whether this is worthwhile, the savings in interest must be
weighed against the fees associated with refinancing. The difficult part of
this calculation is predicting how much the up-front money would
be worth when the savings are received. Other reasons to
refinance include reducing the term of a longer mortgage,
or switching between a fixed-rate and an adjustable-rate mortgage. If there
are prepayment fees attached to the existing mortgage, refinancing

becomes less favorable because of the increased cost to the borrower at the
time of the refinancing.

DEFINITION of 'Refinance'
1. When a business or person revises a payment schedule for repaying debt.
2. Replacing an older loan with a new loan offering better terms.

INVESTOPEDIA EXPLAINS 'Refinance'

When a business refinances, it typically extends the maturity date. When
individuals change their monthly payments or modify the rate of interest on
their loans, it usually involves a penalty fee.

DEFINITION of 'Rediscount'
The act of discounting a short-term negotiable debt instrument for a second
time. Banks may rediscount these short-term debt securities to assist the
movement of a market that has a high demand for loans. When there is low
liquidity in the market, banks can generate cash by rediscounting short-term
securities.

INVESTOPEDIA EXPLAINS 'Rediscount'

A central bank's discount facility is often called a discount window. The term
comes from the days when a clerk would go to a window at the central bank to
rediscount a company's securities.

The act of discounting a bill of exchange (buying it before its normal payment date for
less than it will be worth on that date) that has already been discounted once for
someone else.

Discounting of bills - Cashing or trading a bill of exchange at less than

its par value and before its maturity date. The cash thus realized varies
according to the number of days until maturity and the risk involved.
Discounting / Rediscounting of Bills by banks
Presently banks purchase / discount / negotiate bills under Letter of Credit (LC) only in
respect of genuine commercial and trade transactions of their borrower constituents
who have been sanctioned regular credit facilities by the banks. Banks could not,
therefore, extend fund-based credit facilities (including bills financing) to a nonconstituent borrower or a non-constituent member of a consortium / multiple banking
arrangement.
Further, the practice of drawing bills of exchange claused 'without recourse' and issuing
letters of credit bearing the legend 'without recourse' is discouraged because such
notations deprive the negotiating bank of the right of recourse it has against the drawer
under the Negotiable Instruments Act. Banks therefore, do not open LCs and
purchase / discount / negotiate bills bearing the 'without recourse' clause.
However, Reserve Bank of India (RBI) in notification to banks dated 3rd August 2007
has advised that:
(i) In cases where negotiation of bills drawn under LC is restricted to a particular bank,
and the beneficiary of the LC is not a constituent of that bank, the bank concerned may
negotiate such an LC, subject to the condition that the proceeds will be remitted to the
regular banker of the beneficiary. However, the prohibition regarding negotiation of
unrestricted LCs of non-constituents will continue to be in force.
(ii) The banks may negotiate bills drawn under LCs, on with recourse or without
recourse basis, as per their discretion and based on their perception about the credit
worthiness of the LC issuing bank. However, the restriction on purchase/discount of
other bills (the bills drawn otherwise than under LC) on 'without recourse' basis will
continue to be in force.

DEFINITION of 'Working Capital'

A measure of both a company's efficiency and its short-term financial health.
The working capital is calculated as:

The working capital ratio (Current Assets/Current Liabilities) indicates whether

a company has enough short term assets to cover its short term debt.
Anything below 1 indicates negative W/C (working capital). While anything
over 2 means that the company is not investing excess assets. Most believe
that a ratio between 1.2 and 2.0 is sufficient.Also known as "net working
capital".

Working capital (abbreviated WC) is a financial metric which represents operating

liquidity available to a business, organization or other entity, including governmental entity.
Along with fixed assets such as plant and equipment, working capital is considered a part of
operating capital. Gross working capital equals to current assets. Working capital is
calculated as current assets minus current liabilities.[1] If current assets are less than current
liabilities, an entity has a working capital deficiency, also called a working capital deficit.

Working capital is money available to a company for day-to-day operations.

The formula for working capital is:
Current Assets - Current Liabilities
Venture capital (VC) is financial capital provided to early-stage, highpotential, growth startup companies. The venture capital fund earns money by
owning equity in the companies it invests in, which usually have a novel technology
or business model in high technology industries, such as biotechnology and IT. The typical
venture capital investment occurs after the seed funding round as the first round of
institutional capital to fund growth (also referred to as Series A round) in the interest of
generating a return through an eventual realization event, such as an IPO or trade sale of
the company. Venture capital is a type of private equity.[1]

DEFINITION of 'Venture Capital'

Money provided by investors to startup firms and small businesses with
perceived long-term growth potential. This is a very important source of
funding for startups that do not have access to capital markets. It typically
entails high risk for the investor, but it has the potential for above-average
returns.

INVESTOPEDIA EXPLAINS 'Venture Capital'

Venture capital can also include managerial and technical expertise. Most
venture capital comes from a group of wealthy investors, investment banks

and other financial institutions that pool such investments or partnerships. This
form of raising capital is popular among new companies or ventures with
limited operating history, which cannot raise funds by issuing debt. The
downside for entrepreneurs is that venture capitalists usually get a say in
company decisions, in addition to a portion of the equity.

Definition: Start up companies with a potential to grow need a certain amount of

investment. Wealthy investors like to invest their capital in such businesses with a long-term
growth perspective. This capital is known as venture capital and the investors are called
venture capitalists.
Description: Such investments are risky as they are illiquid, but are capable of giving
impressive returns if invested in the right venture. The returns to the venture capitalists
depend upon the growth of the company. Venture capitalists have the power to influence
major decisions of the companies they are investing in as it is their money at stake.

A loan guarantee, in finance, is a promise by one party (the guarantor) to assume

the debt obligation of a borrower if that borrower defaults. A guarantee can be limited
or unlimited, making the guarantor liable for only a portion or all of the debt.
Guarantor mortgages are popular with young borrowers who do not have a large
deposit saved and need to borrow 100% of the property value to purchase a
property. Generally, their parents will provide a guarantee to the lender to cover any
shortfall in the event of default.

DEFINITION of 'Guaranteed Loan'

A loan guaranteed by a third party in the event that the borrower defaults. The
loan is quite often guaranteed by a government agency which will purchase
the debt from the lending financial institution and take on responsibility for the
loan.

INVESTOPEDIA EXPLAINS 'Guaranteed Loan'

This type of agreement is often made if the borrower is an unattractive
candidate for a loan. It is a way for people in dire need of financial assistance

to acquire funds, without putting excessive risk on the lending financial

institution.

DEFINITION of 'Guaranteed Bond'

A debt security that offers a secondary guarantee that interest and principal
payment will be made by a third party, should the issuer default due to
reasons such as insolvency or bankruptcy. A guaranteed bond can be
municipal or corporate, backed by a bond insurer, a fund or group entity, or a
government authority.

INVESTOPEDIA EXPLAINS 'Guaranteed Bond'

Bonds have an inherent risk of default that could mean a bondholder never
gets the principal back upon maturity and loses out on periodic interest
payments. A guaranteed bond removes this risk by creating a back-up payer in
the event that the issuer is unable to fulfill its obligation. Because of this
lowered risk, guaranteed bonds generally have a lower interest rate than nonguaranteed bonds.

DEFINITION of 'Bank Guarantee'

A guarantee from a lending institution ensuring that the
liabilities of a debtor will be met. In other words, if the
debtor fails to settle a debt, the bank will cover it.

INVESTOPEDIA EXPLAINS 'Bank

Guarantee'

A bank guarantee enables the customer (debtor) to

acquire goods, buy equipment, or draw down loans, and
thereby expand business activity.

Bank Guarantee
Enabling assurance of your payments

A Bank guarantee is a promise from a bank that the liabilities of a debtor will be met in
the event that you fail to fulfill your contractual obligations.

ICICI Bank's Bank Guarantees

Honour payment to your beneficiaries upon receipt of a claim

Provides Bank Guarantees in foreign currency for approved purposes as defined
under FEMA.

Home > Corporate > Non-Fund Based assistance > Bank Guarantee/Performance Guarantee

Bank Guarantee/Performance Guarantee | IDBI Bank Guarantee/Performance Guarantee

Bank Guarantee is an instrument issued by the Bank in which the Bank agrees to stand guarantee against the
non-performance of some action/performance of a party. The quantum of guarantee is called the 'guarantee
amount'. The guarantee is issued upon receipt of a request from 'applicant' for some purpose/transaction in
favour of a 'Beneficiary'. The 'issuing bank' will pay the guarantee amount to the 'beneficiary' of the guarantee
upon receipt of the 'claim' from the beneficiary. This results in 'invocation' of the Guarantee. IDBI Bank issues the
entire
range
of
Bank
Guarantees,
namely,
Bid
Advance
Guaranty
Payment

Bond
payment
for

warranty
Guarantee/Loan

Guarantee
Guarantee
obligation
Guarantee

Performance
Deferred
Shipping
Trade
Standby

payment
Credit

Guarantee
Guarantee
Guarantee
Guarantee
LC

Bank issues Guarantee favoring beneficiaries abroad either directly or through our correspondent banks across
the continents. Similarly, IDBI Bank also issues guarantees favoring resident beneficiaries on behalf of our
overseas branches / correspondents.