description of banking finance.

1. BANKING FINANCE
 KAIVAN KANKARIYA: 000358092
 SHAILJA BHATT: 000358089
 ARPIT MALIK: 000357180
 AMANDEEP SINGH CHEEMA: 000358037
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2. Table Of Content
 Introduction
 Key Elements
 Types Of Bank Financing
 Short term Bank Financing
 Medium term Bank Financing
 Long term Bank Financing
 Conclusion
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3. What is Banking finance?
 Banking refers to that process in which a bank which is a
commercial or government institution offers financial services to their
customers
 that includes lending money , industrial loan, project finance, issue
of currencies ,transaction processing etc.
 The financial institutions are controlled and supervised by the rules
and regulations delineated by government authorities.
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4. What do bank look for?
Banks look for fundamentals at all tags , including:
• Strong Management the bank finance
• Valuation is important and key factor for financing
• Initial Investment of the company
• Competitive Advantage (Barriers to Entry)
• Well Defined Use of Proceeds
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5. • Key Elements of a bank finance
• Clear, concise, quantitative calculation of project
• Use of requested funds ? all expenditures related to the
proposed
investment
• Historic (3 years back) free cash flow available
• Projected (3 years forward) free cash flow available
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6. Financial statements, tax returns,
disclosures
Demonstrated ability to comply with key
loan terms
Track Record
• Achievable ROI (Profitability)
• Growth Potential (Scalability)
• Strong Financial Accounting
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7. The 5 C’s of Credit
1. Character : refers to the borrowers reputation
2. Capacity : measures a borrowers ability to repay a loan by comparing income
against recurring debts
3.Capital :a lender will consider any capital the borrower puts towards a potential
investment because a large contribution by the borrower will lessen the chance of
default
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8. 4.Collateral :property or large assets helps to secure the loan
5.Conditions : interest rate and amount of principle will influence the
lenders desire to finance
the borrower
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9. Types of Bank Financing
Short term Long term
medium term
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10. Short- Term Financing
It is that form of financing which embraces borrowings or lending of funds for a
short period of time. It relates to the finance obtained on short-term basis
usually for one year or less than one year. It is also known as working capital i.E.
The excess of current assets over current liabilities. Short- term financing is
assured for financing the current assets like inventories.
Most of the enterprises use this tool as a source of financing. Its practice is more
in developed countries like U.S.A. Even large scale companies makes use of
short term finance.
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11. Sources Of Short Term Financing
 Trade Creditors
 Customers Advances
 Commercial Banks
 Government Institutions
 Personal Loan Companies
 Finance Companies
 Money Lender
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12. Advantages of Short Term
Financing
 Easier to obtain
 Flexibility
 Convenience
 Tax savings
 Extension of credit
 Lower cost
 Availability
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13. Disadvantages of Short Term Financing
 Frequent maturity
 High cost
 Not used for large projects.
 Usually limited in size.
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14. Purpose of Short Term Financing
 Start-up cost
 Short term operational cost
 Emergency repairs and maintenance
 Cash flow
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15. Medium term financing
 Medium term financing use to support capital goods, services,
equipment such as air craft, motors, tools, transport materials , oil
and gas production equipment ,consultancy etc. Which includes
transactions from $50,000 to millions.
 Generally structured for repayment periods up to 7 years.
 The risk components in medium term financing are the same as in
shorter term transaction .
 Longer the period of financing higher the probability of risk to the
lender.
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16. Forms of medium term lending:
Import credits It provides finance for Export sales
Direct Loans Negotiated between lender and
foreign importer on an individual
basis
Loan agreements and it’s
components
Components: Identify borrower,
loan amount and expenses,
event of default, security ,
jurisdiction
Line of credit allocation To avoid lengthy and costly
negotiations
Supplier credits It includes extended terms of
credit to the buyers
Import credits and Direct Loans Northstar Trade finance
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17. Forfaiting :
It is a method of trade finance that allows exporters to obtain cash by
selling their medium and long – term foreign accounts receivable at a
discount on a “without resource” basis, that means forfaiter assumes and
accepts the risk of non payment.
Debt is usually evidenced by Bills of Exchange, Promissory Notes or a Letter
of Credit, stand by L/C.
Interest rates can be agreed on a fixed rate, although it can also be
arranged on a floating interest-rate bearing basis.
Used for larger transactions covered by series of promissory notes maturing
semi annually for 2-5 years , sometimes only one year.
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18. Forfaiting: Pros and Cons
Advantage: ( to exporter )
As the transactions are without resource, fully eliminating political, transfer
and commercial risk of the importer.
Gives the ability to the exporter to provide longer payment terms and
receive the proceeds cash.
100% financing possibility.
Protects the exporter from future interest rate increases or exchange rate
fluctuations.
Importer receives additional credit through forfaiting from the exporter.
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19. Advantage: ( to bank )
Maximum use of credit lines, not directly used credit lines can be utilized in
the forfaiting market.
Ease and Simplicity of Documentation; simple and quite uniform
documentation which eliminates legal costs each time and makes fast
bookings possible.
Liquid assets; in case of need the credit lines can be freed in a short term.
Attractive Yield; trade related assets have better returns than syndicated
loans
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20. Disadvantage :
Cost is often higher than commercial lender financing
Difficult to arrange for medium size business.
Not readily available to small businesses.
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21. Export Credit Agency :
They are traditionally viewed as lenders of last resort, though roles and
mandates are evolving and supporting exporters in their home countries
that could not obtain financing from other commercial sources
Currently no single model or approach to lending across ECA
Some continue to be direct lenders with no private sector involvement
while others will provide guarantee to banks or other financial institutions
that provide the actual funding.
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22. International Leasing:
This form of financing keeps the ownership of the goods with the lender,
while the use of goods is transferred to the borrower.
Leases Fall into two classes:
1. Operating : A true rental agreement where the lessor holds and
maintains assets for the short term use of lessees.
2. Financial : It simply acts as a lender, providing up to 100% financing for
the asset the borrower is acquiring.
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23. Project Financing:
It is a specialized form of lending and is tailored to unique circumstances.
It is an arrangement whereby the lenders secure their loan by using the
cash flow and collateral provided by the project.
Initial security is combination of undertakings and guarantees by the
project sponsors, which provide the lenders with a satisfactory credit risk.
Project financing is generally employed for larger capital projects involving
substantial risk.
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24. Long Term Financing
 The repayment period of long term financing can be 15-20 years .
It’s duration is to long as compared to short term financing and
medium term financing. These kind of financing usually provide by
banks, financial institutions and export credit agencies in support of
large projects.
 Long term financing is often used to support export and import of
goods and services. Long term financing provide by banks ,
financial institutions and export credit agencies directly or
collaborate.
 Quite the long term financing funded by banks ,it may partially
guaranteed by ECA.
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25. Long Term Financing
 Generally ,long term financing used to purchase long term assets
like machinery, land ,building, transportation and services like
engineering
services consulting services and so on. For purchasing such kind of
assets banks provide fund to the corporations. It is very helpful for
companies because it is not an easy for any company to invest the
huge amount in these assets but without these assets the business
cannot commence.
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26. Sources Of Long Term Finance
 Shares
 Ventures capital
 Government grants
 Mortgage
 Bank loan
 Retained profit
 Owner’s capital
 Selling assets
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27. Advantage Of Long Term Financing
 Debt is a least costly source of long term financing. It is least costly
because..
Interest on debt is tax deductible
 Debt financing provides sufficient flexibility in the financial structure
of the company
 Bondholders are the creditors and have no interference in business
operations because they are not entitled to vote
 The company can enjoy tax saving on interest on debt
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28. Disadvantage Of Long Term
Financing
 Interest on debt is permanent burden on the company. Company
has to pay fix rate of interest to the creditors whether it is earning
profit or not.
 Debt has a fixed maturity date .Therefore ,the financial officer must
make provision for repayment
 Debt is the most risky source of finance because company has to
pay interest and principal on time.
 Only large scale ,creditworthy whose assets are good for collateral
can raise long term finance.
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29. Purpose Of Long Term Financing
 To finance fixed assets
 To finance the permanent part of working capital
 Expansion of companies
 Increasing facilities
 Construction projects on big scale
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30. Executive Summary
 Chinese companies face domestic competition and slow growth in
the developed world. Chinese companies are exploring new
markets and acquiring advanced technology. There is a great
increase in Chinese development when Europe outbound
investment. European companies have been selling non core assets
as China is always the largest export destination for Brazil , Chile and
Peru. Energy companies in China has been used as a significant
investor for bringing financial strength.
 In a nutshell, we can’t imagine market entry on international level
without the help of bank financing because it requires lot of
investment. So, we can say bank financing plays an imperative role
in every kind of business
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31. Relation With Topic
 In this article, we find that the funding power of banks aid the
business activities to a great extent .Chinese development banks
aid the Chinese corporations to expand their business internationally
that is why Chinese companies capturing various sectors in the
distinct countries.
 If we compare the Chinese investors and brazil’s then we find that
Chinese invest $28billion in Brazil while brazil invest only $300 in
China . Bank financing is the back bone for any kind of business, it's
importance even incline more on international level.
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