Loan Agreements
Another important area of banking activities is placing financial resources to generate income and ensure the liquidity of the bank - its active operations. We will consider one group of transactions - credit transactions (or loan).
In practice, Western banks drew a distinction between the business (commercial) loans and personal loans. These categories correspond to different types of credit agreements defining the terms of the loan, its maturity and so on. We consider the most common methods of bank lending to business firms and individual clients in the UK.
British banks are using the overdraft as the main form of short-term lending businesses. Overdraft is inextricably linked to the current account: the presence of the agreement allows the bank account holder write checks for amounts that exceed the credit balance on the account, within the established limit.
Terms of overdraft in the UK - from several months to several years, but the bank usually requires full repayment of the loan once a year and conducts an annual survey of affairs of the client. If you have any doubts about the solvency of the borrower, the contract is terminated.
Interest on overdraft is calculated daily on the outstanding balance. This form of credit is considered to be the cheapest, because the client pays only for the actual used amount.
Other traditional forms of credit, used by British banks on credit loan account (credit on loan account). In contrast to the overdraft the customer opens the special loan account, which is credited to the debit of the loan amount. At the same time credited to customer's current account and the later can use it in the usual way by writing checks and removing the cash. Credit for loan account available to finance capital expenditures and for the implementation of various commercial projects.
Terms of the loan to loan account are different. They depend on the timing of the economic life of purchased equipment or from the estimated time of the project. Usually these loans are classified as medium-and long-term. Interest is calculated quarterly on the outstanding portion of the loan and deducted from a checking account customer. In some cases the practice of their enrollment in credit loan account together with the contributions to the repayment of principal.
Leasing operations received wide popularity in the UK. At the beginning of the 70-s lease financing of large and expensive equipment involved in financial houses, who practiced as a lease with full payment of rental equipment as well as agreement on the terms "sales, followed by the rental" (sale and lease back). In the latter case, the company will sell its equipment finance company, and then get it back in rent. Subsequently, the scope of the leasing business invaded the big banks, which bought part of the lease forms and began to lend lease transactions.
