Long term loans

Examples of Long term loans in the following topics:

• Long-Term Loans

  • Three common examples of long term loans are government debt, mortgages, and debentures (bonds).
  • Long term loans are generally over a year in duration and sometimes much longer.
  • Three common examples of long term loans are government debt, mortgages, and bonds or debentures .
  • Long term loans are generally over a year in duration and sometimes much longer.
  • Outline the characteristics of three types of long term loans: debt, mortgages and bonds

• Reporting Long-Term Liabilities

  • An example of this is a student loan.
  • Let's say John, a freshman in college, obtains a student loan for 25,000 and the bank does not require loan payments until 6 months after he graduates, i.e. 4.5 years after the loan was originated.
  • This is an example of a long-term liability.
  • "Notes Payable" and "Bonds Payable" are also examples of long-term liabilities, and they often introduce an interesting distinction between current liabilities and long-term liabilities presented on a classified balance sheet.
  • Despite a Note Payable, Bonds Payable, etc., starting out as a long-term liability, the portion of that debt that is due within a year has to be backed out of the long-term liability and reported as a current liability.

• Short-Term Loans

  • Short-term loans offer individuals and businesses borrowing options to meet financial obligations.
  • The borrower receives cash from the lender more quickly than with medium- and long-term loans, and must repay it in a shorter time frame.
  • A payday loan (also called a payday advance) is a small, short-term unsecured loan.
  • The basic loan process involves a lender providing a short-term unsecured loan to be repaid at the borrower's next pay day.
  • A bridge loan is a type of short-term loan, typically taken out for a period of two weeks to three years pending the arrangement of larger or longer-term financing.

• Current Maturities of Long-Term Debt

  • The portion of long-term liabilities that must be paid in the coming 12-month period are classified as current liabilities.
  • Long-term liabilities are liabilities with a due date that extends over one year, such as a notes payable that matures in 2 years.
  • Examples of long-term liabilities are debentures, bonds, mortgage loans and other bank loans (it should be noted that not all bank loans are long term since not all are paid over a period greater than one year. ) Also long-term liabilities are a way for a company to show the existence of debt that can be paid in a time period longer than one year, a sign that the company is able to obtain long-term financing .
  • Bonds are a form of long-term debt because they typically mature several years after their original issue date.
  • Explain the reporting of the current portion of a long-term debt

• Discount Policy

  • The Fed can grant loans to financial institutions.
  • Adjustment credit is a short-term loan to help banks, experiencing short-term liquidity problems.
  • Thus, the Fed grants a long-term loan to this bank, preventing a bank failure.
  • Many economists argue the Fed should set the discount rate greater than a comparable short-term interest rate.
  • The Fed implemented the Term Auction Facility (TAF) Program after the 2008 Financial Crisis.

• Institutions, Markets, and Intermediaries

  • Banks provide a safe and accessible environment for individuals and economic entities to deposit excess funds Additionally, banks also provide a service by packaging deposits into loans that are made available to economic agents (individuals and entities) in need of funds.
  • Through diversification of loan risk, financial intermediaries are able to mitigate risk through pooling of a variety of risk profiles and through creating loans of varying lengths from investor monies or demand deposits, these intermediaries are able to convert short-term liabilities to assets of varying maturities.
  • Returning to the example of a bank used above, banks convert short-term liabilities (demand deposits) into long-term assets by providing loans; thereby transforming maturities.
  • Additionally, through diversified lending practices, banks are able to lend monies to high-risk entities and by pooling with low-risk loans are able to gain in yield while implementing risk management.
  • Banks convert deposits to loans and thereby increase access to capital by serving as a financial intermediary between savers and borrowers.

• Non-Bank Financial Institutions

  • But these short-term financial fixes can cost you big bucks because they are ostensibly high-cost loans.
  • Consider your options to taking a high-cost loan and use loans wisely.
  • A payday loan is a small, high-interest, short-term cash loan.
  • Although a payday loan may be a convenient short-term solution, it is not a good idea for long-term cash needs.
  • You run the risk of getting into a payday loan cycle of debt by taking out loan after loan

• Credit Operations

  • Companies frequently offer credit to their customers as part of the terms of a purchase agreement.
  • A line of credit may take several forms, such as overdraft protection, demand loan, special purpose, export packing credit, term loan, discounting, purchase of commercial bills, traditional revolving credit card account, etc.
  • However, unlike a term loan, revolving debt allows the borrower to draw down, repa,y and re-draw credit amounts advanced to her by the available capital during the term of the debt.
  • The loan is generally provided at a cost, referred to as interest on the debt, which provides an incentive for the lender to engage in the loan.
  • Long-term interest rate statistics for non-Euro countries plus Greece, Portugal, and Ireland.

• Current Obligations Expected to Be Refinanced

  • Per FASB 6, current obligations that an enterprise intends and is able to refinance with long term debt have different reporting requirements.
  • To take advantage of a better interest rate or loan terms (a reduced monthly payment or a reduced term)
  • To consolidate other debt(s) into one loan (a potentially longer/shorter term contingent on interest rate differential and fees)
  • Most fixed-term loans are subject to closing fees and points and have penalty clauses that are triggered by an early repayment of the loan, in part or in full.
  • Refinanced debt must be finalized and the new loan terms approved before reporting it and replacing it for the old debt in the liability section.

• A Bank Failure

  • A bank holds excess reserves and short-term, highly liquid securities to prevent a bank failure.
  • Your bank could ask the Federal Reserve for a loan, but the Fed may not grant the loan.
  • Banks spread their loans across different industries, different regions, and different loan borrowers.
  • If a factory bankrupts and defaults on its commercial loan, the loan default does not harm the bank severely because the bank is earning income on the other loans.
  • Banks minimize adverse selection by fostering a long-term relationship with the borrowers.