Page 171 - Corporate Finance PDF Final new link

NPP

BRILLIANT’S Long Term Financing and Valuation of Goodwill & Shares 171

are loans for more than a year maturity. H$s hmoVr h¡& gm‘mݶV: ^maV ‘| ¶o 6 go 10 df© Ho$ nr{a¶S>
Generally, in India, they are available for a Ho$ {bE CnbãY hmoVo h¢& Hw$N> Ho$goO ‘| ¶o 25 df© H$s
period of 6 to 10 years. In some cases, the
maturity could be as long as 25 years. Interest ‘¡À¶mo[aQ>r Ho$ ^r hmoVo h¢& Q>‘© bmoZ na BÝQ>aoñQ> Q>¡³g
on term loans is tax deductible. Mostly, term {S>S>p³Q>~b hmoVm h¡& A{YH$m§eV: Q>‘© bmoÝg {’$³ñS> AgoQ²>g
loans are secured through an equitable na g‘mZ ê$n H$s ‘m°Q>©JoO go gwa{jV hmoVo h¢& AnZo BÝQ>aoñQ>
mortgage on immovable assets. To protect their H$mo gwa{jV aIZo Ho$ {bE XoZXma BpÝñQ>Q²>¶yeÝg boZXma
interest lending institutions impose a number
’$‘© na ~hþV go [apñQ´>³eÝg bJmVo h¢&
of restrictions on the borrowing firm.
Features of Term Loan Q>‘© bmoZ H$s {deofVmE§
The main features of term loan are as Q>‘© bmoZ H$s ‘w»¶ {deofVmE§ {ZåZ h¢:
follows:
1. Security: Term loans are always secured. 1. {g³¶y[aQ>r: Q>‘© bmoZ h‘oem gwa{jV hmoVo h¢&
They are secured either by any special assets, gm‘mݶV: Q>‘© bmoZ àm¶‘ar {g³¶y[aQ>r Ho$ ê$n ‘|o {H$gr
which is called primary security. Sometimes, {deof AgoQ²>g go gwa{jV hmoVo h¢& Q>‘© bmoZ H$ånZr Ho$
they are secured by the company's current and H$a§Q> ¶m {’$³ñS> AgoQ²>g go ^r gwa{jV hmoVo h¢ {OÝh|
fixed assets. This is called secondary security
goH$ÊS>ar {g³¶y[aQ>r ¶m H$moboQ>ab {g³¶y[aQ>r ^r H$hVo h¢&
or collateral security.
2. Maturity: Banks and specially created 2. ‘¡À¶mo[aQ>r: ^maV ‘| ~¢³g VWm {deof ê$n go
financial institutions (FIs) are the main sources ~ZmE JE ’$mBZopÝe¶b BpÝñQ>Q²>¶ye§g Q>‘© bmoZ Ho$ ‘w»¶
of term loans in India. FIs provide term loans gmog}g hmoVo h¢& ’$m¶ZopÝe¶b BpÝñQ>Q²>¶yeÝg gm‘mݶV: 6
generally for a period of 6 to 10 years. In some go 10 df© Ho$ nr[a¶S> Ho$ {bE Q>‘© bmoZ àXmZ H$aVo h¢&
cases, a grace period of 1 to 2 years is also
granted. This is the period during which the Hw$N> Ho$gog ‘| 1 go 2 df© H$m J«og nr[a¶S> ^r {X¶m OmVm
h¡& Bg nr[a¶S> Ho$ Xm¡amZ H$ånZr H$mo H$moB© no‘|Q> Zht H$aZm
company is not required to make any payment.
Commercial banks advance term loans for a hmoVm h¡& H$‘{e©¶b ~¢H$ Ho$ Q>‘© bmoZ 3 go 5 df© Ho$
period of 3 to 5 years. nr[a¶S²>g Ho$ hmoVo h¢&
3. Convertibility: Financial institutions in 3. H$Ýd{Q>©{~{bQ>r: ^maV ‘| ’$mBZo§{e¶b BpÝñQ>Q²>¶yeÝg
India provide large amount as a loan to the H$ånZrO H$mo bmoÝg Ho$ ê$n ‘| ~‹S>m A‘mCÝQ> XoVo h¢& BZ
companies. Due to financial stake of these BpÝñQ>Q²>¶yeÝg Ho$ ’$mBZ|[e¶b ñQ>oH$ Ho$ H$maU BZHo$ nmg
institutions, they had the option to convert a
bmoZ Ho$ Hw$N> nmQ>© H$mo Bp³dQ>r ‘| H$ÝdQ>© H$aZo H$m Am°ßeZ ^r
part of the rupee loan into equity. But now, they
hmoVm h¡& Bg àH$ma ¶o ’$mBZopÝe¶b BpÝñQ>Q²>¶yeÝg AnZo
do have to convert their loan into
bmoZ H$mo Bp³dQ>r ‘| H$ÝdQ>© H$a gH$Vo h¢&
equity.
Features of Term
4. Direct negotiations: In Loan 4. S>m¶ao³Q> {ZJmo[gEeÝg: ~¢H$ VWm
order to take loan from banks and Aݶ ’$m¶ZopÝe¶b BpÝñQ>Q>²¶yeÝg go bmoZ
1. Security
other financial institutions, there àmßV H$aZo Ho$ {bE ~¢H$ VWm Eogo
2. Maturity
is direct negotiation between firm 3. Convertibility BpÝñQ>Q²>¶yeZ Ho$ ~rM S>m¶ao³Q> [ZJmo{eEeZ
and bank or such institutions. 4. Direct negotiations hmoVm h¡& Bg{bE Q>‘© bmoZ EH$ àm¶doQ>
Therefore, term loan is private