Corporate loans

Corporate loans are obtained by corporations to finance their business operations. These loans ranges from, among others, overdrafts and term loans to contract financing banking facilities and syndicated loans.

A corporation's power to borrow is usually contained in it's constitutional document which is called the memorandum of association. Being an inorganic legal person and thus incapable of thinking and making decisions on its own, the power to borrow of a corporation is delegated to it's board of directors who makes the decision for the request for and acceptance of a loan by passing an appropriate board resolution.

Corporate loans for working capital

Overdraft

The most common form of corporate loan for working capital purposes obtained by corporations is the overdraft.

Similar to overdrafts granted by banks to individual persons, an overdraft granted to a corporation involves a current account opened and maintained at the bank making available the overdraft.

The corporation can then write checks/cheques in excess of the balance standing to the credit of the current account and draw on the overdraft subject to the limit imposed on such overdraft. The balance outstanding on the overdraft will bear interest at an agreed rate. Such interest shall be payable or serviced monthly by the corporation without the need to repay the whole outstanding principal balance of the overdraft though it may choose to do so.

Overdrafts provide maximum flexibility but are almost always subject to repayment of the whole outstanding balance on demand by the bank.

Term loans

Term loan is another common form of corporate loan which is given for a fixed term. A term loan is usually obtained by a corporation to finance the purchase of fixed assets such as office premises, factories and machineries.

Term loans are usually non-revolving where amounts repaid cannot be redrawn by the corporation. Repayment of a term loan is by way of fixed instalments or, sometimes, by way of one bullet repayment at the expiry of the term of the loan.

Term loans may also be revolving in the sense that it may be repaid and thereafter redrawn during the term of the loan.

Repayment terms of a term loan would invariably include a provision for it to be repaid immediately on demand upon the happening of an event of default such as the failure to pay the agreed instalments.

Corporate loans for specific project or contract

Syndicated corporate loans

A syndicated loan is a loan granted by a group of lenders to a corporation.