Archives May 2022

Lender (SBLC/BG)

Definition of a Lender

A lender is an individual, a public or private group, or a financial institution that makes funds available to another with the expectation that the funds will be repaid. Repayment will include the payment of any interest or fees. Repayment may occur in increments (as in monthly mortgage payment) or as a lump sum.

Lenders may provide funds for a variety of reasons, such as a mortgage, automobile loan or small business loan. The terms of the loan specify how the loan is to be satisfied, the period of the loan, and the consequences of default. One of the largest loans consumers take out are home mortgages.

Important Considerations

Qualifying for a loan depends largely on the borrower’s credit history. The lender examines the borrower’s credit report and more. The report helps the lender determine whether the borrower is comfortable managing payments based on current employment and income.

The lender may also evaluate the borrower’s debt-to-income (DTI) ratio comparing current and new debt to before-tax income to determine the borrower’s ability to pay. Lenders may also use private investigating firm to check score in the borrower’s credit report to determine creditworthiness and help make a lending decision.

When applying for a secured loan, such as an auto loan or a home equity line of credit, the borrower pledges collateral this is what we provide to borrower to present to banks or investor. The lender evaluates a borrower’s available capital. Capital includes savings, investments and other assets which could be used to repay the loan if household income is insufficient. This is helpful in case of a job loss or other financial challenge. The lender may ask what the borrower plans to do with the loan. Other factors may also be considered, such as environmental or economic conditions.

Lender Instance

Banks, savings and loans, and credit unions may offer Small Business Administration (SBA) programs and must adhere to SBA loan guidelines. Private institutions, angel investors, and venture capitalists lend money based on their own criteria. These lenders will also look at the nature of the business, the character of the business owner and the projected annual sales and growth for the business.

Small business owners prove their ability for loan repayment by providing lenders both personal and business balance sheets. The balance sheets detail assets, liabilities and the net worth of the business and the individual. Although business owners may propose a repayment plan, the lender has the final say on the terms.

  • A lender is an individual, a public or private group, or a financial institution that makes funds available to another with the expectation that the funds will be repaid.
  • Repayment will include the payment of fees.
  • Repayment may occur as a lump sum.

Fixed-Income Security

Definition of Fixed-Income Security

A fixed-income security is an investment that provides a return in the form of fixed periodic interest payments and the eventual return of principal at maturity. Unlike a variable-income security, where payments change based on some underlying measure such as short-term interest rates, the payments of a fixed-income security are known in advance.

Advantages of Fixed-Income Securities

Fixed-income securities provide steady interest income to investors throughout the life of the bond. Fixed-income securities can also reduce the overall risk in an investment portfolio and protect against volatility or wild fluctuations in the market. Equities are traditionally more volatile than bonds meaning their price movements can lead to bigger capital gains but also larger losses. As a result, many investors allocate a portion of their portfolios to bonds to reduce the risk of volatility that comes from stocks.

It’s important to note that the prices of bonds and fixed income securities can increase and decrease as well. Although the interest payments of fixed-income securities are steady, their prices are not guaranteed to remain stable throughout the life of the bonds. For example, if investors sell their securities prior to maturity, there could be again or loss due to the difference between the purchase price and sale price. Investors receive the face value of the bond if it’s held to maturity, but if it’s sold beforehand, the selling price will likely be different from the face value.

However, fixed income securities typically offer more stability of principal than other investments. Corporate bonds are more likely than other corporate investments to be repaid if a company declares bankruptcy. For example, if a company is facing bankruptcy and must liquidate its assets, bondholders will be repaid before common stockholders.

Corporate bonds are backed by the financial viability of the company. In short, corporate bonds have a higher risk of default than government bonds. Default is the failure of a debt issuer to make good on their interest payments and principal payments to investors or bondholders.

Fixed-income securities are easily traded through a broker and are also available in mutual funds and exchange-traded funds. Mutual funds and ETFs contain a blend of many securities in their funds so that investors can buy into many types of bonds or equities.

Commitment Fee

Definition of a Commitment Fee

A commitment fee is a banking term used to describe a fee charged by a sblc providers to a borrower to compensate the lender for its commitment to lend. Commitment fees typically are associated with unused credit lines or un-disbursed loans. The lender is compensated for providing access to a potential loan through a commitment fee, since it has set aside the funds for the borrower and cannot yet charge interest.

Understanding Commitment Fee

A commitment fee generally is specified as either a flat fee or a fixed percentage of the un-disbursed loan amount. The lender charges a commitment fee as compensation for keeping a line of credit open or to guarantee a loan at a specific date in the future. The borrower pays the fee in return for the assurance the lender will supply the loan funds at the specified future date and at the contracted interest rate, regardless of conditions in the financial and credit markets.

Legal Qualification of a Commitment Fee

Legally, a commitment fee is different from interest, although the two often are confused. The key distinction between the two is that a commitment fee is calculated on the un-disbursed loan amount while interest charges are calculated by applying an interest rate on the amount of the loan that has been disbursed and not yet repaid.

Interest also is charged, and paid, periodically. A commitment fee, on the other hand, often is paid as a one-time fee at the closing of the financing transaction. A further commitment fee may be charged by a lender at the renewal of credit facilities. In the case of open lines of credit, a periodic commitment fee may be charged on the unused portion of the available funds.

In most cases, if the borrower decides not to move forward with the loan, the commitment fee still is payable to the lender.

Instance Calculating a Commitment Fee

In the case of a one-time loan, the commitment fee is negotiated between the lender and the borrower. The fee can be a flat amount, such as $1,000,000, or a percentage of the loan amount, such as 5%.

For an open line of credit, a formula is used to calculate the average available amount of credit on a periodic basis, often quarterly. The fee is then calculated by multiplying the average unused commitment by the agreed-upon commitment fee rate and again by the number of days in the reference period.

Bank Instruments

Definition of a Bank Instruments?

Bank instruments are assets that can be traded, or they can also be seen as packages of capital that may be traded. Most types of financial instruments provide efficient flow and transfer of capital all throughout the world’s investors. These assets can be cash, a contractual right to deliver or receive cash or another type of financial instrument, or evidence of one’s ownership of an entity.

  • A bank instrument is a real and effective document representing a legal agreement involving any kind of monetary value.
  • Bank instruments may be divided into two types: cash instruments and derivative instruments.
  • Bank instruments may also be divided according to an asset class, which depends on whether they are debt-based or equity-based.
  • Foreign exchange instruments comprise a third, unique type of financial instrument.

Knowledge About Financial Instruments

Bank instruments can be real and effective documents representing a legal agreement involving any kind of monetary value. Equity-based financial instruments represent ownership of an asset. Debt-based financial instruments represent a loan made by an investor to the owner of the asset.

Foreign exchange instruments comprise a third, unique type of financial instrument. Different subcategories of each instrument type exist, such as preferred share equity and common share equity.

International Accounting Standards (IAS) defines bank instruments as “any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity.

Types of Financial Instruments

Financial instruments may be divided into two types: cash instruments and derivative instruments.

Cash Instruments

  • The values of cash instruments are directly influenced and determined by the markets. These can be securities that are easily transferable.
  • Cash instruments may also be deposits and loans agreed upon by borrowers and lenders.

Derivative Instruments

  • The value and characteristics of derivative instruments are based on the vehicle’s underlying components, such as assets, interest rates, or indices.
  • These can be over-the-counter (OTC) derivatives or exchange-traded derivatives.

There are no securities under foreign exchange. Cash equivalents come in spot foreign exchange. Exchange-traded derivatives under foreign exchange are currency futures. OTC derivatives come in foreign exchange options, outright forwards, and foreign exchange swaps.

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Discussing bank instruments

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International Finance

Definition of International Finance

International finance is sometimes known as international macro economics is a section of financial economics that deals with the monetary interactions that occur between two or more countries. This section is concerned with topics that include foreign direct investment and currency exchange rates.

International Finance Corporation

The International Finance Corporation (IFC) is an organization dedicated to helping the private sector within developing countries. It provides investment and asset management services to encourage the development of private enterprise in nations that might be lacking the the necessary infrastructure or liquidity. for businesses to secure financing. {Note: International finance also involves issues pertaining to financial management, such as the political and foreign exchange risk that comes with managing multinational corporations.]

Understanding More About International Finance & International Finance Corporation

International finance research deals with macro economics that is, it is concerned with economies as a whole instead of individual markets. Financial institutions and companies conducts international finance research, external trade and development of markets in countries around the world.

The IFC ensures that private enterprises in developing nations have access to markets and financing. Its most recent goals include the development of sustainable agriculture, expanding small businesses’ access to micro finance, infrastructure improvements, as well as climate, health, and education policies.

The International Finance Corporation as a Partner Organization

The IFC views itself as a partner to its clients, delivering not only support with financing but also technical expertise, global experience, and innovative thinking to help developing nations overcome a range of problems, including financial, operational, and even at times political.

The IFC also aims to mobilize third-party resources for its projects, often engaging in difficult environments and leading crowding-in private finance, with the notion of extending its impact beyond its direct resources.

  • International finance is a section of financial economics that deals with the monetary interactions that occur between two or more countries.
  • The growing popularity and rate of globalization have magnified the importance of international finance.
  • International Finance is concerned with topics that include foreign direct investment and currency exchange rates.