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Paul Ervin B.

Enciso BSA 1B Hard Copy of Report

March 15, 2011 Prof. Zyd Zamora

Chapter VI CLASSIFICATION OF CREDIT & THEIR SOURCER page 98 102 G. Industrial Credit Industrial Credits are loans granted to finance the acquisition of equipment and machineries to finance the construction of a plant or factory or some extent to finance the purchase of raw materials for manufacturing capital goods for consumption purposes.

H. Real Estate Credit Real Estate credits are loans granted to finance the purchase and improvement of real properties like houses or a building. Usually these loans are paid off by installment over a period of time. I. Government or Public Credit Government or Public credits are credits obtain from any government institutions or their instrumentalities. The debtor may be the national provincial or local government. Example of these are the building of roads, bridges, irrigation systems, dams, and geothermal plants. These kind of credit are usually relying heavily from domestic and foreign sources. J. Secured and Unsecured Credits J.1 Secured credit Secured credits are those credits which are covered by properties of value called collateral to guarantee loans. When the borrower fails to pay his loan when it falls due, the creditor has the right of foreclose the mortgage and have such properties disposed off to satisfy the former's obligation, including interests and other charges was pledged to secure it. Example: Banks J.2 Unsecured credit is one where the borrower has merited the full trust and confidence of the creditor. The creditor is willing to part his money, goods and services for just a mere promise to pay. The disadvantage of this is that when the creditor is unable to pay, the debtor can't get any collateral.

K. Short-term, Medium-term, Long-term Loans K.1 Short-term are loans payable within 1 year. Examples are retail credits from sari-sari stores, revolving charge, bank loans. K.2 Medium-term are loans payable from 1 year up to 5 years. Examples are car loans and installment on appliances. K.3 Long-term are loans payable beyond 5 years and usually up to 15 years to 20 years. Example are real estate loans and investments. L. Direct loans, Discount loans, and Credit lines L.1 Direct loans are loans whose interest payment are made at the time the loan matures. The summation of the credit and the interest is payed simultaneously. L.2 Discount loans are loans where interest is deducted if the creditor pays early from the maturity date. Example are 5/10, 3/15, 2/20 which means 5% discount if payed within 10 days and 3% discount if payed within 15 days. L.3 Credit lines is and agreement between the debtor and the creditor wherein the debtor is allowed to obtain funds from the creditor up to a certain amount.

3 types of Credit Lines 1. Regular credit line the debtor is allowed to draw funds from the creditor up to an amount agreed upon the funds draw when paid can be repeatedly borred again. 2. Maximum loan commitment the borrower can obtain funds from the creditor up to a certain amount agreed upon but when payed the creditor cannot borrow again from that person. 3. Overdraft line the bank allows its depositors to draw from the bank beyond their actual eposits. Exmple: youre credit limit is 15 thousand but you used 20 thousand. The 5 thousand is the overdraft credit.

SOURCES OF CREDIT 1. BANK Banks are the most common sources of credit. Banks are classified as commercial banks, thrift banks, rural banks, and specialized government banks. 1.A Commercial banks are banks specializes in giving commercial loans to businessmen. 1.B Thrift banks is further subdivided into 3 categories 1.B.1 Savings and mortgage bank any corporation organized for the purpose of accumulating the small savings of depositors and investing them, together with its capital, in bonds or in loans secured by bonds, real estate mortgage, and other forms of security, as hereinafter provided, or in loans for personal finance and long-term financing for home building and home development. 1.B.2 Stock savings and loan association It is engaged in the business of accumulating the savings of the people and using such accumulated funds, together with is capital, for loans and investments in securities of productive enterprises or securities. 1.B.3 Private development bank This bank aims to develop and expand the economy of the country pursuant to the socioeconomic develop program of the government. This is a good source of developmental loan for industrial and agricultural growth. 1.C Rural Banks are banks organized to cater to the needs of farmers and small businessmen in the rural areas including the cottage industries. 2.Retail stores the retail stores are one of the biggest sources of personal credit. Almost every sari-sari store in the country has its own sphere of customers and give loans to them on an open book account basis. 3.Credit unions the primary objective of credit union is to assist the cooperative farmers in their business. This is one of the cheapest sources of credit since borrowing members pay a very low interest on loans. Profit is only a 2nd priority. 4.Individual Money Lenders These are individuals who have excess funds and who usually lend money to others who are in need. The tendency of an individual money lender is to charge exorbitant interest for the use of his money because the risk is very great. Example are the Bumbay.

5.Insurance Companies The insurance companies are also sources of credit for insured individuals. Such individual could borrow from their insurance companies an amount equivalent to the cash surrender value of their policy. 6. Sales Finance Companies This is one of the biggest sources of consumers credit. They also extent credit facilities to industrial, commercial and agricultural enterprises. Example are the leasing motor vehicles, heavy equipment, industrial machineries, and business equipment.