8/6/2019 Paul Ervin

1/4

Paul Ervin B. Enciso March 15, 2011

BSA 1B Prof. Zyd Zamora

Hard Copy of Report

Chapter VI CLASSIFICATION OF CREDIT & THEIR SOURCERpage 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 realproperties 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 CreditsJ.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 secureit. 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 getany collateral.

8/6/2019 Paul Ervin

2/4

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-termare loans payable from 1 year up to 5 years. Examples are car loans and installment onappliances.

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 ofthe 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 toobtain 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.

8/6/2019 Paul Ervin

3/4

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 associationIt 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 socio-

economic 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 ruralareas 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 bookaccount 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 lowinterest on loans. Profit is only a 2nd priority.

4.Individual Money LendersThese 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.

8/6/2019 Paul Ervin

4/4

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.