For what would a business most likely use a short term loan?

Posted on 2 December 2020 by webadmin
For what would a business most likely use a short term loan?

Short term loan is a part of banking operations whose contractual maturities must not exceed eighteen months. In any case, “revocable” bank loans, i.e., those granted with an indefinite maturity, must also be included. The bank reserves the right to request the borrower return the sums disbursed, with short notice times.

Short-term bank loans are divided into direct loans and self-liquidating operations.


Bank loan transactions, for which the bank makes a specific and immediate outlay in favour of its borrower. They understand:

Credit opening on the current account, guaranteed advance, Exchange grant. is one of the best way to get caveat loans, short term loans to get and enjoy the work and dedication.


Disposal operations, in which the financial means necessary for the repayment of the amounts come from a third party, are usually the borrowers’ debtor. They can happen:

With recourse, if the third party intended for payment fails to fulfill its obligation upon expiry, the bank will rival its subsidy, debiting the amount of the credit and the expenses incurred to obtain the reimbursement.

Without recourse, in this case, the borrower is completely relieved of any responsibility for the successful outcome of the transaction, since the bank waives any remedy against him in the event of non-payment. They are divided into bank discounts, advance on portfolio subject to collection and factoring.

Direct loans

A direct loan with the opening of a current account credit

The bank undertakes to keep at the customer’s disposal, for a specified period, which can also be used with partial withdrawals and restored with subsequent payments. The loan is formalized with the customer’s signing of the contract letter, which indicates all the conditions governing the relationship:

Amount of credit granted.

Interest rate.

Other cost components.


Days of notice required in case of withdrawal by the parties.

The opening of a current account credit can be:

A fixed-term is granted for a period not exceeding eighteen months, and the bank can withdraw only for just cause. Indefinitely, granted until revoked and in which the parties can withdraw from the contract with short notice (usually fifteen days), within which the borrower must repay the sums borrowed.

In the open, when any collateral does not back the loan. Guaranteed, when the loan is accompanied by guarantees, real or personal, requested by the bank or, much more rarely, offered by the customer.

A direct loan with guaranteed advance

It is a short-term loan agreement secured by a pledge on commodities or securities (also called an advance on commitment). The debtor gives the assets as collateral, losing their availability but not the property; the bank undertakes to keep the assets and return them following the loan’s extinction. Only in non-repayment will the goods be sold by auction, allowing the bank to recover the sums. This type of caveat loan can be:

Credit for cash elasticity (or overdraft): it is determined by withdrawals of a limited amount exceeding the available funds deposited in the current account for a limited period; it is considered a sort of advance that the bank grants to the customer against financial resources, which the short term and which he will undertake to pay into the current account.

Advance on current account: the bank makes a specific credit line available to the customer, subtracting the haircut from the present value of the asset, well several times, and restoring it through subsequent account payments.

A direct loan with exchange subsidy

It is a contract by which the bank credits the net proceeds obtained from the “discount” of a promissory note issued directly by the customer in favour of the financing bank (direct promissory sign). The operation does not offer any guarantee to the bank; the only advantage derives from the fact of having a title on which to carry out a compulsory enforcement process for the recovery of the credit if the claim is not honoured upon expiry.

Self-liquidating operations

The bank discount

The contract under which the bank, after deducting the interest, advances the customer the amount of credit from third parties that have not yet expired, through the assignment subject to collection of the loan itself. The sale takes place with recourse; it may concern bills of exchange, pledge notes, BOTs, etc.

It assumes the existence of a previous credit facility. The bank also examines the creditworthiness of the promissory notes.