What Does The Term "Finance" Mean And What Are Its Characteristics?

The commercial banks since some time back have started advancing finance in large amount for fairly long periods to industry and agriculture sectors. These finances are repayable either in periodic instalments or in lump sum at a fixed future time. There are different features of the term finance.

Loans are sanctioned for fixed period. In case the loan is sanctioned against collateral security, it is called secured loan and if no collateral security is taken it is named as clean loan. The amount of loan is placed at the disposal of the borrower in lump sum for pre arranged period or at an agreed rate of interest. A separate loan account is opened in the name of borrower with the amount sanctioned. The sanctioned amount by the bank has to be taken in full by the borrower and not partially. The interest charges are paid by the borrower from the date the loan is transferred to the borrower's account. The bank before sanctioning term finance examines the different documents like the assets and liabilities of the applicant, the earned profit and earning capacity of the undertaking, the financial position of the undertaking and the purpose and period of the loan applied for.