Question

You are a commercial loan officer with a local bank. Your customer is a general contractor in

business for several years looking for short-term funding for items like payroll, etc.. Accounts

receivable agings show sufficient current receivables are more than adequate to cover the

requested loan. What type of loan structure would you offer and what affirmative or negative

covenants might you include on the loan agreement.

Answer 1

A loan is a type of debt (both long term and short term) provided by bank/financial institution/ private lender to any person/entity.

There a various types of short term and long term loans.

In the current situation, the customer is a general contractor who needs short term funding for items such as payroll etc. In such a situation the banker should offer him a short term loan which serves the purpose of working capital of the employee. In such loans, you get a certain amount of money which needs to be paid on daily/weekly basis in intervals in the course of 3-18 months. THough such loans are easily available, but they can involve huge cost. Further such loans can be borrowed any number of times depending upon the needs of the customer. They can be used for any of the following purposes:-

1.Purchasing inventories

2. Getting additional working capitals

3. Covering previous gaps