FINANCIAL RESOURCES

With the rapid growth of the company and market, we do need more money to build the new office, and buy the new equipment to produce the new products that the customer needs. For most of large companies, they can obtain a variety of loans including short-term or long-term from the local or foreign banks and International Financial Institutes such as World Bank, I.M.F, ADB, and IFC... etc. The interest can be fixed, variable and renegotiable in accordance with the stipulation of the loan contract.

The schedule of repayment may also be flexible. Under a hire purchase agreement, a firm purchasing a particular assets pays a deposit to a finance house, which then settles the balance in return for a stream of repayments by installment over three to five years (3-5 years) ahead.

Budgeting is extremely important and a process in which all managers shall be involved. The basic structure of the firm budgets follow the logic of profit and loss account with each source of cost and revenue placed in advance. There will also be each flow forecast and possibly expenditure budget covering long-term investment.

     The places where we can get the loans:

I-    Loan from Export Bank to Import Bank (Buyer’s Credit):

Loan is lent by the export bank to import bank. After signing the sale contract, the buyer has to deposit 10% -15% on the amount of goods. The balance is lent by export bank to import bank with Letter of Guarantee (L/G). The import bank lends the above-mentioned amount to importer. The loan and interest will be paid by installment in accordance with the contract. In general, the two following contracts have to be signed:

     1-  Sale Contract between the Seller and Buyer

2-  Loan Contract between the Import and Export Banks.

II-   Loan from Export Bank to Exporter (Seller’s Credit):

After signing the sale contract, the buyer deposits 10% - 15%. The importer has to pay off the balance that he has owed and interest to the exporter after the delivery the goods. Then the exporter repays the loan to export bank. In short, the exporter is at the risk during the deal.

III-  Compensation Trade:   

The exporter is responsible for the loan from the export bank by supplying the technique, equipment, training and variable services to the importer. After the operation, the importer repays the loan by returning the products to the exporter.

The compensation trade can be classified into two types:

     1- Product Buyback:

The products compensated for the equipment, technology and raw material are directly manufactured by the said equipment and technology.

2- Counter Purchase:

It is also called indirect compensation, that is to say, the said equipment and technology are compensated for the other commodities or services agreed by the parties in advance.

IV-  Foreign Loan:

The loan between government and government is to aim for the aid character. In general, the interest rate is lower than the loan from the Commercial Bank. The annual interest is 2% - 3%. Term of loan is from 20 years – 30 years. The schedule of repayment is paid by installment.

V-   Loan from International Financial Institute:

1-International Bank for Reconstruction and Development (I.B.R.D):

I.B.R.D is an international lending organization, popularly known as World Bank, founded at the Bretton Woods Economic Conference in 1944 to finance the reconstruction of Europe following World War II and more recently to provide developing countries with long term and low interest credit for the industrial development when the private financing is unavailable. The World Bank closely works with I.M.F and has 149 member countries.

2- International Monetary Fund (I.M.F):

I.M.F is an international organization, was formed at the Bretton Woods Economic Conference in 1944 to maintain monetary stability in the world community. It has 146 members including United States. The I.M.F works closely with the World Bank. Its focus is to lower trade barrier and stabilize the currency.

3- Asian Development Bank (A.D.B):

            A.D.B was set up in 1960’s. Its charter gives it a mandate to promote economic cooperation in the Asian and Pacific Regions. A.D.B undertakes these complementary functions in this respect. First, through its research and regional technical assistance activities, it provides the information to enable developing member countries (D.M.C) to better understand the importance of cooperation. Second, because of its impartial charter, the bank is in a position to play a supportive role by encouraging dialogue among of DMC. Third, as a development catalyst, the bank is not only to provide its own funds to support regional cooperation, but also to help mobilize funds from other sources such as multilateral and bilateral agencies.     

  The Loans Can Be Classified Into Nine Kinds:

    1- Commercial and Industrial Loan (C.I.L):

Commercial and Industrial Loan is the loan to a corporation, commercial enterprise or J/V, as opposed to a loan to a customer or Letter of Credit. Loan can be a source of working capital or used to finance the purchase of manufacturing plant and equipment. These loans are generally short-term.

    2- Installment Loan:

     The loan will be repaid with the interest owed in equal periodic payment of principle and interest. Installment loans are fully amortizing loans, repayable over a fixed amortization schedule in monthly installment. These loans can be secured by personal property. For example; an auto loan.

    3- Mortgage Loan:

The Mortgage Loan is the long-term loan for the real estate, normally is to 30 years, but can be written for much shorter periods.

     4- Demand Loan:

     It is a loan with no specific maturity date, but payable at any time. Only interest is paid until the principle is paid off.

    5- Time Loan:

     The time loan is the short-term business loan that is payable in full at specific maturity date. For Example: 30, 60, 90, 120 days. The interest, on this type of loan, originally is deducted in advance when the loan is made.

    6- Inter-Bank Loan:

     The Inter-Bank Loan is the loan between bank and bank, which is usually supported by the federal fund.

     7- Soft Loan:

     The loan with long-term is mostly used for the project supported by the International Financial Institutes such as World Bank, A.D.B and I.M.F… etc. Usually the interest rate is lower than the market’s price.

     8- Term Loan:

     Intermediate to long-term (typically 2 to 10 years) secured credit is granted to a company by a commercial bank to finance capital equipment or providing working capital. The loan is amortized over a fixed period, sometimes ending with a balloon payment.

     9- Back to Back Loan:

     A two-party loan is made to a multinational parent company in one country and a subsidiary in another. Usually, the parent pledges collateral for the loan. If the subsidiary defaults, a lender has recourse against the parent.

     A loan made in one currency against a loan denominated in another currency. Compare parallel financing.

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