Question

What are the different types of short-term finances given by commercial banks?

Answer 1

1. Loans and Advances:
The loan is a direct advance made in a lump sum which is credited to a separate loan account in the name of the borrower. The borrower can withdraw the entire amount in cash immediately.

2. Bank Overdraft:
Bank overdraft refers to an arrangement whereby the bank allows the customers to overdraw the required amount from its current deposit account within a specified limit.

3. Discounting Bills of Exchange:
When goods are sold on credit, the suppliers generally draw bills of exchange upon customers who are required to accept them.

4. Trade Credit:
Trade credit is the credit extended by one trader to another for the purpose of purchasing goods and sendees. Purchaser need not pay money immediately after the purchase.

5. Pledge:
A customer transfers the possession of an article with the creditor (banker) and receives a loan. Till the repayment of the loan, the article is under the custody of the borrower. If the debtor fails to refund the loan, the creditor (banker) will auction the article pawned and adjust the outstanding loan from the sale proceeds.

6. Hypothecation:
This is a loan taken by depositing a document of title to the property with the banker. Of course, the physical possession of asset property is with the borrower. If the borrower fails to repay the loan amount, the article hypothecated will be sold in auction by the banker concerned.