Question

Discuss three reasons why firms may borrow funds from a bank.

Answer 1

The firms borrow funds from a bank because;

1.

If the firm has taken loans from the banks, then the Repayment is fixed, so it is easy to make a budget for repayment of laons.

2. Bank loans Provide security for the interest rate and it is lower than the unsecured loans.Hence it is profitable to borrow money from the banks at a lower interest rate. Usually the Bank interest rate is lower for the larger firms compare to small firms because the big firms may present the security for loans.

3.

The installements are fixed if loan is taken from the banks and so it is easy pay back loans at installements and it is not burden for the firms if the loan is paid in the installements.