1.
Describe the Different Types of Loans offered by
Commercial Banks and Explain how Trade Credit &
Equipment Loans can Provide Initial Capital Funding.
INTRODUCTION
 Initial in a normal economy, there are different and
several types of loans offered by commercial banks
because
 Businesses/organisation need capital funding to
operate. Big and small companies require financial
start-ups, boost to maintain operations, inventory,
purchase supplies, equipment and complete other
essential functions of business.
 Initial Zimbabwe has about 24 banks of which 18 are
commercial banks, 4 are merchant banks; 4 Building Society
and One [1] Saving bank.

2.
Commercial Banks in Zimbabwe
• CBZ Bank Limited
• Standard Chartered Bank Zimbabwe
• Stanbic Bank Zimbabwe (Pvt- Ltd) Awarded Best Comm Bank in 2014.
• Barclays Bank of Zimbabwe Limited
• NMB Bank Limited
• FBC Bank Limited
• Banc ABC Limited (Formerly ABC Bank)
• Agri-Bank : Agricultural Development Bank of Zimbabwe Ltd
• Steward Bank
• EcoBank Limited
• Zb Bank Limited
• These are the examples of the types of Commercial
banks, they are not all listed here, just to mention a few

3.
Start-Up Loans
They give companies/organisations the initial
capital required by the applicant to start a
business.
Usually the loan can be secured by the business
premises or by the inventory, the business plans
to purchase in – order to function, or it might be
an unsecured loan based on assets and credit
worthiness of the person starting the business.
This money is used to build a storefront, acquire
inventory or pay franchise fees to get a business
rolling. Conti...

4.
Start-Ups Loan Requirements
 Sound Business Plan, Security - Collateral
 Collateral i.e title deeds, land, house & some assets.
 Repayment period is usually shorter.
 70% of Zimbabwean Entrepreneurship business is
informal.
 To stimulate economic activity, the government
introduced start-up loans for the Youths to curb
unemployment through i.e Stanbic and CBZ start-up
loans fund
 Payback period is less than 12months.

5.
Line of Credit
 It is another type of business loan provided by
Commercial banks. Organisations need a ready flow
of money to keep operating especially with the
economic ups & downs.
 They may have months where they are in need for
operating cash and months where they have plenty of
money.
 A line of credit, is secured by the facilities or
inventory of the business, allows the business to
draw from readily available funds the company can
pay back overtime & draw again without constantly
going through the loan process.

6.
Line of
Credit Requirements
 It gives you cover-up especially for working capital
requirements.
 There is a business relationship between the
organisation and the Commercial Bank.
 Designed to meet short term working capital needs
for example expanding inventory. It helps to cover
operational expenses that can be paid back in the
near team.
 Collateral and repayment terms are established on an
annual basis and tailored to your needs.
 Seasonal businesses generally use these loans to help
smooth out cycle of cash flow needs.

7.
OVERDRAFT
Short term loan, it is given on approval.
Does not require collateral or no collateral is
involved.
When you breach they will just remit
interest.
It can either be secured or non secured.
It is short term loan from 3to 12months.

8.
A DEBENTURE
A debenture is a long term loan that a company
can take. Normally it should be repaid on a
specific date.
The majority of debenture come with a fixed
interest rate.
The interest must be paid before dividends are
paid to shareholders.
The interest that is paid to debenture holders is
calculated as a charge against profit in the
company’s financial statements.

9.
A LONG TERM LOAN
 They provide a set amount of capital for a particular need.
 It is a bank loan with a repayment period of more than one year,
generally 5 to 15 yearly repayment.
 It is usually taken by Companies, Institutions or Government for
longer term payback projects, i.e. Building of a new factory or
purchase of new production equipment, Herald of September 26,
2014 cited a story entitled “KPMG Secures $160m for Zimbabwe
Power Company (ZPC)”. According to the story the money is part
of the $533m that is required for the expansion of Kariba South
Power Station.
 The funds have been sourced from Stanbic Bank South Africa and
ZPC has since entered into an arrangement with Namibia’s power
utility Nampower for the sale of 80MW as security guarantee for
the Stanbic loan. A long term loan is Usually repaid using
instalments.
 Term loans are secured with cash, inventory, equipment, securities,
or real estate.

10.
MORTGAGE
Is a long-term loan, secured by collateral of
some specified real estate property.
The borrower is obligated to make periodic
instalments to repay the loan.
Failing to honour up, the lender can enforce
its rights to possess the mortgaged property
A good example is CABS building property

11.
BRIDGE LOAN
 Loans given to businesses who might be in need of instant
cash flow to finance a project.
 Bridge loans are normally obtained while the borrower is
waiting for long-term financing to go through.
 Bridge loans are good for temporary fix to acquisition or
business adventure as they allow borrower to act fast.
This type of loan can be used for buy outs.
 Bridge loans require excellent credit and proof of income.
 Specific to cover an immediate loan need whose funding
we don’t have. e.g. Liquid Telecoms obtained 18 000 000
from Commercial Bank Conti...

12.
Real Estate Purchase Loans
 It is the same as commercial mortgage in that it is a
traditional type of financing.
 Financing is for purchase, refinance, or construction of
office buildings, apartments, retail buildings, industrial
buildings, apartments, retail buildings, industrial
buildings, medical dental offices or warehouses.
 Options include owner-occupied or income –producing
financing, interim or permanent financing.
 The property being financed is used as collateral and
the loan’s rate is determined by the loan-to-value ratio.

13.
Hard Money Loan
It is collateralized loan where the property
that is in need of cash also serves as the
collateral.
Hard money loans are temporary and usually
only offered when time is of the essence,
such as during a fore closure proceeding.
They usually meet the same standards other
commercial loans do hence carry a high risk
of default and therefore a high interest rate.

14.
SMALL BUSINESS ADMINISTRATION
LOANS
 Small Business Administration loans are also dispensed by
commercial banks.
 These are loans made specifically to small businesses that
want to begin operations and are guaranteed by different
Ministries, government and other Private Organisation.
 In this case, the commercial banks are the go-between
that allows the business to receive the money from the
SBA through the financing process. Start-up for Youth,
Women, SME(s) and small entities.
 These are a special type of loan and carry certain
conditions and restrictions different from normal banking
loans.

15.
EQUIPMENT LOANS
Used to purchase equipment such as computers,
heavy equipment, industrial/production
machinery, vans, cars and other machinery.
Repayment terms are depended upon type and
age of collateral.
Hire purchase
Rent to buy
Use now and pay later
Franchising i.e. MacDonalds, Spar KFC 3-5 years
Leasing

16.
CONSTRUCTION LOAN
Help pay for construction costs such as
materials and labour.
Land and Subdivision Development
Allows you to purchase a lot to build on or
buy land to subdivide.
Subdivision loans usually allows up to 18
months to subdivide, improve and begin
selling 5 years allowance.

17.
EQUIPMENT AND VEHICLE LOANS
• Allows you to purchase computers, heavy
equipment, new or used cars, vans trucks or
other machinery.
• Repayment terms are dependent upon type
and age of collateral.

18.
ACCOUNTS RECEIVABLE LOANS
Allows you to pay monthly operating
expenses while waiting for payments from
customers.
This type of loan on having credit worthy
customers.

19.
LETTERS OF CREDIT
 These are an important financing tools for companies that engage in
International Trade. When business deals with issues abroad, you’ll likely
need letters of credit. Its simply a guarantee of payment upon proof that
contract terms between completed.
 They are used to facilitate international credit purchases.
 The bank only grants letter of credit if only there is an adequate line of
credit established.
 The International Chamber of Commerce in 1933 and revised as recently
as 2007 rules to govern a standard letter of credit format accepted
Internationally and are known as the ‘Uninform Customs and Practice for
Commercial Documentary Credits’.

20.
Short-Term Demand Note
A short-term demand note, the most
common type of loan made by a
commercial bank, extends a sum of money
to the borrower who signs a document, or
note, promising to repay the loan.
The funds are extended for a single purpose
with clearly defined repayment sources.

21.
DEMAND LOAN
 A demand loan account, the entire amount is paid to the debtor at
one time, either in cash or by transfer to his savings bank or
current account.
 No subsequent debit is ordinarily allowed except by way of
interest, incidental charges, insurance premiums, expenses
incurred for the protection of the security etc.
 Repayment is provided for by installment without allowing the
demand character of the loan to be affected in any way.
 There is usually a stipulation that in the event of any installment,
remaining unpaid, the entire amount of the loan will become due.
 Interest is charged on the debit balance, usually with monthly
rests unless there is an arrangement to the contrary. No cheque
book is issued.
 The security may be personal or in the form of shares, Govt paper,
fixed deposit receipt, life insurance policies, goods, etc.

22.
CASH CREDIT
 A cash credit is basically a drawing account against credit granted by the
bank and is operated in the same way as a current account in which an
overdraft limit has been sanctioned.
 The principal advantages of a cash credit account to a borrower are that,
unlike the party borrowing on a fixed loan basis, the borrower may
operate the account within the stipulated limit as and when required
and can save interest by reducing the debit balance whenever he is in a
position to do so.
 The borrower can also provide alternative securities from time to time in
conformity with the terms of the advance and according to his own
requirements.
 Cash credits are normally granted against the security of goods e.g. raw
materials, stock in process, finished goods. It is also granted against the
security of book-debts.
 If there is good turnover both in the account and in the goods, and there
are no adverse factors, a cash credit limit is allowed to continue for years
together; a periodical review would be necessary.

23.
BILLS DISCOUNTED
 Maturing within 90 days or so after date or sight, are
discounted by banks for approved parties.
 In case a bill, say for Rs. 10,000/- (approx. $223 USD)
due 90 days hence, is discounted today at 20% per
annum, the borrower is paid Rs. 9,500/- (approx.
$211 USD), its present worth. However the full
amount is collected from the drawee on maturity.
 The difference between the present worth and the
amount of the bill represents earning of the banker
for the period for which the bill is to run. In banking
terminology this item of income is called "discount".

24.
BILLS PURCHASED
 Bills, clean or documentary, are sometimes purchased from approved
customers in whose favour regular limits are sanctioned.
 In the case of documentary bills, the drafts are accompanied by
documents of title to goods such as railway receipts or bills of lading
(BOL). Before granting a limit, the creditworthiness of the drawer is to
be ascertained.
 Sometimes the financial standing of the drawees of the bills are verified,
particularly when the bills are drawn from time to time on the same
drawees and/or the amounts are large.
 Although the term "Bills Purchased" seems to imply that the bank
becomes the purchaser / owner of such bills, it will be observed that in
almost all cases, the bank holds the bills (even if they are indorsed in its
favour) only as security for the advance.
 In addition to any rights the banker may have against the parties liable
on the hills, he can also fully exercise a pledge's right over the goods
covered by the documents.

25.
FIXED RATE
 Fixed-rate loans are among the most common
consumer loans.
 Fixed-rate loans keep the same interest rate
throughout the life of the loan.
 The interest rate on fixed-rate loans may be slightly
higher in most cases than a variable-rate loan.
 The advantage of a fixed-rate loan, especially in the
case of a home mortgage, is that your payment stays
the same throughout the repayment term except for
slight variations to keep your escrow balance high
enough to pay taxes and homeowners insurance.

26.
VARIABLE RATE
 Variable-rate loans have interest rates that fluctuate
depending on the market rate or “prime” rate.
 With a variable interest rate, the amount you pay on
your home loan, car loan or student loan can vary
each month.
 Variable interest rates are usually lower than fixed
rates, which make them attractive to first-time home
buyers or those wishing to refinance a loan.
 Using a variable-rate mortgage to save money in the
beginning and then switching to a fixed rate when
market rates begin to go up is a common loan
management strategy.

27.
CONDITIONS FOR QUALIFICATION
• Be Account holder for that particular bank
• Creditworthy business proposal
• Financial statements and management accounts
• 12 months cash flow projections
• Company profile
• Company registration documents
• Tax clearance certificate
• Environmental compliance
• NB:- These conditions vary from bank to bank,
country, state, continent & the type of loan required.

28.
TRADE CREDIT & EQUIPMENT LAONS CAN
PROVIDE INITIAL CAPITAL FUNDING
• BY
• Advance Supply of Stock to companies i.e.
Supermarkets/Wholesalers by Manufactures.
• Stock/Inventory - Consignment.
• Dealership/Agency.
• Provision of whole new equipments for start-
up and franchise business. i.e Macdonald,
Chicken Inn

29.
CONCLUSION
Money is the life blood of a business.
Business owners need to understand sources
and uses of money or capital to be effective.
However as there are various ways of loans
for start-up and running an entity the
situation in Zimbabwe is not conducive to
enable and fund the majority of
Entrepreneurs for their business start-ups and
even maintain an entity running smoothly
without obtaining further credit loans.

30.
Different Types of Loans Offered by
Commercial Banks
Presented By:-
Sinqobile Ndebele (Designed/Researched/Scriber) by – skn
Patrobes Mugadza
Litha Moyo
Pamela Sibanda Ngoma
Shalom Ndlovu

31.
REFERENCE
WEBLIOGRAPHY
• www.inc.com/encyclopedia
• www.martinfowler.com
• www.wikipedia,com
• Credit Managers of Commercial Banks