Question

What are the different types of short term financial assistance provided by the commercial banks to business houses?

Answer 1

There are different types of short term financial assistance provided by the commercial banks to business houses :
Cash Credits: It is revolving credit agreement under which a borrower is allowed to borrow up to a certain limit. Cash credit is of two types: Clean Cash Credit and Secured Cash Credit. In both types of cash credit, the borrower has to pay interest only on the amount actually utilized.

Discounting of Bills: Commercial banks provide short term finance to business concerns by discounting their bills of exchange, promissory notes, and hundies. Banks pay the price lower than the face value and charge some commission.

Loan and Advances: A loan is a direct advance made in a lump sum which is credited to a separate loan account in the name of the borrower. These are usually secured by a pledge of specific assets that are in the actual or constructive possession of the bank.

Bank Overdrafts: Under this arrangement, a customer having a current account with the bank is allowed to overdraw his account to a specified amount. Interest is charged on the amount actually overdrawn and not on the amount sanctioned by the bank.