Chapter 21 erm loans and leases 21-1
21-1 Chapter 21 Term Loans and Leases
Term Loans and leases Term loans Provisions of Loan Agreements Equipment Financing Lease Financing Evaluating Lease Financing in Relation to Debt Financing 21-2
21-2 Term Loans and Leases Term Loans Provisions of Loan Agreements Equipment Financing Lease Financing Evaluating Lease Financing in Relation to Debt Financing
Term loans Term Loan --Debt originally scheduled for repayment in more than 1 year, but generally in less than 10 years. Credit is extended under a formal loan arrangement Usually payments that cover both interest and principal are made quarterly, semiannually, or annually The repayment schedule is geared to the borrower fa cash-flow ability and may be amortized or have a balloon payment 21-3
21-3 Term Loan -- Debt originally scheduled for repayment in more than 1 year, but generally in less than 10 years. Term Loans Credit is extended under a formal loan arrangement. Usually payments that cover both interest and principal are made quarterly, semiannually, or annually. The repayment schedule is geared to the borrower 抯 cash-flow ability and may be amortized or have a balloon payment
Costs of a Term loan The interest rate is higher than on a short- term loan to the same borrower( 25 to 50 basis points on a low risk borrower) Interest rates are either (1)fixed or(2) variable depending on changing market conditions-possibly with a floor or ceiling Borrower is also required to pay legal expenses (loan agreement and a commitment fee(25 to 75 basis points)may be imposed on the unused portion 21-4
21-4 Costs of a Term Loan The interest rate is higher than on a shortterm loan to the same borrower (25 to 50 basis points on a low risk borrower). Interest rates are either (1) fixed or (2) variable depending on changing market conditions -- possibly with a floor or ceiling. Borrower is also required to pay legal expenses (loan agreement) and a commitment fee (25 to 75 basis points) may be imposed on the unused portion
Benefits of a Term loan The borrower can tailor a loan to their specific needs through direct negotiation ith the lender Flexibility in terms of changing needs allows the borrower to revise the loan more quickly and more easily Term loan financing is more readily available over time making it a more dependable source of financing than say, the capital markets 21-5
21-5 Benefits of a Term Loan The borrower can tailor a loan to their specific needs through direct negotiation with the lender. Flexibility in terms of changing needs allows the borrower to revise the loan more quickly and more easily. Term loan financing is more readily available over time making it a more dependable source of financing than say, the capital markets