Term Paper on Debt Financing

Term Paper on Debt Financing
Term Paper on Debt Financing
Financing is first thought entrepreneur gets while thinking to start a business or expanding an existing one. Debt financing is a financing method in which an organization or a company gets a loan and the company has to repay that loan in specific time duration.

This term paper on debt financing will focus on all aspects and impacts of debt financing. Debt financing comprises of two types of loans secured and unsecured loans. This term paper on debt financing will clearly explain the differences between these two types of loans. Secured loans are those in which loan cannot be approved without a collateral. If the debtor is unable to return a loan the collateral is forfeited by bank. Sometimes the lenders also require some security for approving secured loans. Below are list of securities you can offer to lenders for secured loan approval.

GUARANTORS: They sign the agreement prepared by lender or bank that they guarantee that the loan will be returned.

ENDORSERS: They are just like guarantors except they have to submit collateral too.

COMAKERS: They take liability that they are responsible for paying back loan.

ACCOUNTS RECEIVABLES: It is an option that 60% to 65% of the receivables value is given to bank or lender as soon as the goods are shipped.

SAVING ACCOUNTS AND CERTIFICATES: Saving accounts or certificates can also be used for the approval of secured loans.

The other type of debt financing is through unsecured loans. In unsecured loans no collateral is required and the approval of loan is depended entirely upon your credit history. Unsecured loans are usually short term loans with high interest rates. Short terms loans requires lots of paper work for approval.

With respect to repayment period, loans are of three types:

SHORT TERM LOANS: In this type of loan repayment period is really short and comprises of six to eighteen months.

INTERMEDIATE TERM LOANS: These terms have to be paid back within three years.

LONG TERM LOANS: These loans have to be paid back within five years or less.

Commercial banks usually have high interest rates and they also require a lot of paper work too. So most people consider family and friends as best source of debt financing

It is better to avoid taking too much loans because the chances of getting stuck into debt cycle increases significantly as you increase the amount of loan.

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