Commercial banks in the country are widely focused and reasonably developed as the next significant source of job in the capital finance commercial banking network.
The key types of working capital financing offered by commercial banks are straight loans, cash advances, hypothecation loans, pledge loans, overdrafts, and bill buying and discounting.
They lend in the following form:
1. There are straight loans, with or without protection. There is a one-time lump-sum payout, while repayments can be intermittent or one time. check this out to know more about working capital finance.
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2. Cash credit is an agreement that gives borrowing facilities to customers (business concerns) up to a certain amount, the amount being checked and updated year after year. Interest is charged on actual borrowings, but a commitment fee can be paid for use.
3. A mortgage advance is given on stock hypothecation or other assets. This is a secured loan. The creditor is permitted to manage the goods.
5. Current account keeping customers are granted an overdraft facility to overdraw the account up to a certain amount. It is a very common method of extending aid to working capital.
4. The financing of bills by buying or discounting exchange bills is another growing method of funding. The seller of credit products here draws a bill on the buyer and the latter accepts the same. The banker will get discounted on the bill per cash. This type is famous.