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Long-term Bank Loan

Definition A type of loan that has an extended time period for repayment usually lasting between three and 30 years.Car loans and home mortgages are example of long-term loans.

Characteristics
Time to Maturity describes the length of the loan contract
Repayment Schedule payments maybe required at the end of the
contract usually on a monthly or semi-annual basis. It will repaid little by little until it is completely retired.

Interest interest is the cost of borrowing money. the interest rate


charged to cover operating costs, administrative costs and an acceptable rate of return.

Security assets pledged as security against loan loss are known as


collateral. For example, borrower puts other assets, including cash aside as collateral.

Advantages
Competitive Interest Rates - Individual and commercial

bank loans typically offer competitive market interest rates and other reasonable repayment terms when compared with non-traditional lender offers. Bank Loans Are Always Available - Bank loans should always be available since institutions must keep their depositors' money "working" and earning more interest than the bank is paying on deposits. Better Banking Relationship and Terms - For borrowers who meet lending criteria, bank loans cost less than other financing sources, offer liberal repayment terms and enhance an overall good relationship with one's financial institution

Disadvantages
Possible Delay In Getting the Loan - Depending on a

borrower's immediate need for cash, the longer processing time often required by busy bank personnel may result in an unacceptable delay. Limitations - There are a number of limitations on the transaction. Good credit is often required to borrow money, and there are stipulations on how the money can be used Cash Flow - Borrowing too much money can lead to decreased cash flow and payments can even overtake income in some cases; this is why many loan payments are limited to a certain percentage of a borrower's income.

Cost
Long-term loans usually start at 25,000 and go up

toward 200,00. The more money you need, the more rigorous the approval process becomes.

Implication
Possible delay in getting the loan.

Not everyone qualifies for a bank loan.

Application
Best use to construction, major capital improvements, large capital investments, such as machinery, working capital, purchases of existing businesses. Term loans require collateral and a relatively rigorous approval process but can help reduce risk by minimizing costs. Before deciding to finance equipment, borrowers should be sure they can they make full use of ownership-related benefits, such as depreciation, and should compare the cost with that leasing.

Mortgage
Definition Mortgage represent notes payable that have as collateral real assets and require periodic payments. Mortgages can be issued to finance the acquisition of assets, construction of plant and modernization of facilities. The bank will require that value of property exceed the mortgage on that property.

Advantages
-you can make substantial capital gain. This can be a great way of realising capital growth over a long period -commercial mortgages are not subject to rental fluctuations of residential properties giving you a more stable business planning environment -tax deductible interest payments. Commercial mortgage interest payments are tax deductible.This can contribute to reducing your business' annual tax overheads

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Disadvantages
you need a decent sized deposit. This represents money

which could be used in other business operations it can be harder to move your business if you own the premises. With property rental, you can often negotiate ending your rent agreement or find another business to take up your tenancy if you have a variable rate mortgage, you can leave yourself vulnerable to interest rate increases

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characteristics
A mortgage is an actual transfer of equitable interest in

immovable property(land building). The transfer is of a specific moveable property for obtaining loan. Since the mortgage is a contract,it cannot be carried out by a minor mortgagor(borrowed). The mortgage documents must be registered.

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Application
Mortgage loans are usually entered into by home

buyers without enough cash on hand to purchase the home. They are also used to borrow cash from a bank for other projects using their house as collateral. Types of loans are characterized by their term dates (usually from 5 to 30 years, some institutions now offer loans up to 50 year terms), interest rates (these may be fixed or variable), and the amount of payments per period

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Implication and cost


Large upfront cost
cost of interest
When you get a mortgage, you are charged an interest rate this is the rate which the lender charges you for using their money to buy a home. It determines how much your monthly payments will be. Generally speaking, the higher the interest rate, the higher your monthly payment.

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