Financial Terms related to Loan

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LOAN
Back end loan fund

• A mutual fund that charges investors a fee to sell (redeem) shares often is ranging
from 4% to 6%. Some back-end load funds impose a full commission if the shares
are redeemed within a designated time, such as one year. The commission
decreases the longer the investor holds the shares. The formal name for the back-
end load is the contingent deferred sales charge, or CDSC.

Back to back loan

• An example of a back-to-back loan would be IBM agreeing to lend dollars to British

Petroleum in exchange for the latter lending pounds to IBM. Such agreements are
struck only when exchange controls in one or more countries prevent normal capital
flows.

• A loan in which two companies in separate countries borrow each other's currency
for a specific time period and repay the other's currency at an agreed upon maturity.
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Bridge loan

• Is a type of temporary financing which is extended until permanent financing is

secured. At that time, funds from the new permanent financing are used to pay off
the bridge loan. Sometimes, investment banks have arranged, if not granted, bridge
loans in order to participate in a syndicate mandated to raise long-term or permanent
financing.

Broker loan rate

• Related: Call money rate.

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Builder buy down loan

• A mortgage loan on newly developed property that the builder subsidizes during
the early years of the development. The builder uses cash to buy down the
mortgage rate to a lower level than the prevailing market loan rate for some period of
time. The typical buy down is 3% of the interest-rate amount for the first year, 2% for
the second year, and 1% for the third year (also referred to as a 3-2-1 buy down).

Bullet loan

• A bank term loan that calls for no amortization.

• A bank term loan that calls for no amortization. The term is commonly used in the
Euromarket.

Bullet loan or security

• All principal is due at maturity.

Collateralized loan obligation

• Is similar in structure to the Collateralized Mortgage Obligation. See Collateralized

Mortgage Obligation for analogous terms.

Commercial and industrial loans c&i loans

• Loans made to mining, manufacturing, trade, transport, construction, and service

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firms. These can be secured and unsecured, spot loan or a loan commitment,
revolving or take-it-or-leave it type of loan.

Day loans

• Loans made by chartered banks to investment dealers who are major holders of
treasury bills.

Dealer loan

• Overnight, collateralized loan made to a dealer financing his position by borrowing

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from a money market bank.

• Overnight, collateralized loan made to a dealer financing his position by borrowing

from a money market bank.

Discount loans

• Loans on which interest is paid in advance by being deducted from the amount
borrowed.

Discount window loans

• These are the loans Federal Reserve makes to the banks. The interest cost is
below the Fed funds rate. Maybe used during temporary liquidity crunches as
emergency borrowing. Fed may clamp down on excessive usage. Arbitraging the fed
funds rate can potentially cost the bank its charter.

Equivalent loan

• Given the after-tax stream associated with a lease, the maximum amount of
conventional debt that the same period-by-period after-tax debt service stream is
capable of supporting.

Eurocurrency loan market

• A large number of international banks that make long-term, floating rate, hard-
currency (typically U.S. dollar-denominated) loans in the form of lines of credit to
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international corporate and government borrowers.

Federal home loan banks

• The institutions that regulate and lend to savings and loan associations. The
Federal Home Loan Banks play a role analogous to that played by the Federal
Reserve Banks vis- -vis member commercial banks.

• Abbreviated FHLB. Government sponsored wholesale banks (currently 12 regional

banks) that lend funds and provide correspondent banking services to member
commercial banks, thrift institutions, credit unions and insurance companies. The

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mission of the FHLBs is to liquefy the housing related assets of its members who
must purchase stock in their district Bank.

• The institutions that regulate and lend to savings and loan associations. The
Federal Home Loan Banks plays a role analogous to that played by the Federal
Reserve Banks vis-a'-vis member commercial banks.

Federal home loan mortgage corporation

• Is one of the three Government Sponsored Agencies, issues mortgage pass-

throughs and provides guarantee against defaults.

Fixed rate loan

• A loan with a rate of interest that is determined at a set increment above the prime
rate at which it remains fixed until maturity.

• A loan on which the rate paid by the borrower is fixed for the life of the loan.

• A loan on which the rate paid by the borrower is fixed for the life of the loan.

Floating rate loan

• A loan with a rate of interest initially set at a state premium above the prime rate
and allowed to float, or vary, as the prime rate varies until maturity.

Intercompany loan
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• Loan made by one unit of a corporation to another unit of the same corporation.

Inventory loan

• A secured short-term loan to purchase inventory. The three basic forms are a
blanket inventory lien, a trust receipt, and field warehousing financing.

Jumbo loan

• Jumbo Loans are loans in excess of $240,00.

• Loans of $1 billion or more. Or, loans that exceed the statutory size limit eligible for

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purchase or securitization by the federal agencies.

Loan amortization

• The determination of the equal annual loan payments necessary to provide a

lender with a specified interest return and to repay the loan principal over a specified
period.

Loan amortization schedule

• A schedule of equal payments to repay a loan. It shows the allocation of each loan
payment to interest and principal.

• The schedule for repaying the interest and principal on a loan.

Loan commitments

• Loan commitments involve a promise by the bank to provide a loan at some

(usually fixed) interest rate during a stated time period (say 1 year). The customer
has the option of taking down a loan in the future at the agreed upon rate if he so
chooses.

Loan syndication

• Group of banks sharing a loan. See: syndicate.

Loan value
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• The amount a policy holder may borrow against a whole life insurance policy at the
interest rate specified in the policy.

Multicurrency loans

• Give the borrower the possibility of drawing a loan in different currencies.

Multifamily loans

• Loans usually represented by conventional mortgages on multi-family rental

apartments.

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Parallel loan

• A process whereby two companies in different countries borrow each other's

currency for a specific period of time, and repay the other's currency at an agreed
maturity for the purpose of reducing foreign exchange risk. Also referred to as back-
to-back loans.

• An example of a parallel loan would be IBM agreeing to lend dollars to a sub of

British Petroleum in exchange for the latter lending pounds to an IBM British sub.
Such agreements are struck only when exchange controls in one or more countries
prevent normal capital flows.

Project loan certificate

• Abbreviated PLC. A primary program of Ginnie Mae for securitizing FHA-insured

and co-insured multifamily, hospital, and nursing home loans.

Project loan securities

• Securities backed by a variety of FHA-insured loan types -primarily multi-family

apartment buildings, hospitals, and nursing homes.

Project loans

• Usually FHA-insured and HUD-guaranteed mortgages on multiple-family housing

complexes, nursing homes, hospitals, and other development types.
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Revolving loans

• These refer to a type of loan where the maximum amount is initially specified. The
borrower can at any time borrow and repay any amounts as long as they stay below
the maximum amount of the revolver credit. Credit cards are an example of revolver
loans.

Savings and loan association

• Federal- or state-chartered institution that accepts savings deposits and invests the
bulk of the funds thus received in mortgages.

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• National- or state-chartered institution that accepts savings deposits and invests
the bulk of the funds thus received in mortgages.

Secured loan

• A loan that has specific assets pledged as collateral.

• These are the loans which require that certain assets must be pledged as security.
In case of default, the lender will receive these assets. Once pledged, the same
assets cannot be pledged to someone else. Most bank loans require that accounts
receivables and inventory be pledged as security.

Self liquidating loan

• Loan to finance current assets, The sale of the current assets provides the cash to
repay the loan.

Short term self liquidating loan

• An unsecured short-term loan in which the use to which the borrowed money is put
provides the mechanism through which the loan is repaid.

Term loan

• Loan extended by a bank for more than the normal 90day period. A term loan
might run five years or more.
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• A bank loan, typically with a floating interest rate, for a specified amount that
matures in between one and ten years and requires a specified repayment schedule.

Term loan agreement

• A formal contract, ranging from a few to a few hundred pages, specifying the
conditions under which a financial institution has made a long-term loan.

Term long term loan

• A loan made by a financial institution to a business and having an initial maturity of

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more than one year.

Transaction loan

• A loan extended by a bank for a specific purpose. In contrast, lines of credit and
revolving credit agreements involve loans that can be used for various purposes.

Trust receipt inventory loan

• A secured short-term loan against inventory under which the lender advances 80 to
100 percent of the cost of the borrower's relatively expensive inventory items in
exchange for the borrower's promise to repay the lender, with accrued interest,
immediately after the sale of each item of collateral.

Unsecured loan

• A loan that has no assets pledged as collateral.

Variable rate loan

• Loan made at an interest rate that fluctuates with the prime.

• Loan made at an interest rate that fluctuates based on a base interest rate such as
the Prime Rate or LIBOR.

Warehouse receipt loan

• A secured short-term loan against inventory under which the lender receives
control of the pledged inventory collateral, which is stored by a designated
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warehousing company on the lender behalf.

Whole loan

• Is a mortgage, either commercial or residential, that has not been securitized.

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