To produce, companies need raw materials, labor, but also a variety of equipment: land, buildings, manufacturing equipment, etc… , All of these devices are called the production tools. Whether the creation or development needs, any company needs to invest, that is to say, to acquire new means of production. Once in place, they allow the company to produce more or better conditions, which will allow him to generate additional profits. A company can finance its investments by self, without resorting to external capital. This solution has the advantage for the company to make it independent of the others, but it has the drawback of limiting the company in its investment opportunities. Therefore, the use of bank loans is the most commonly used because it is often the only possible (or almost) for almost all small and medium companies. However, we must recognize that this funding has disadvantages for the company that makes it dependent on the vagaries of the distribution of credit (amount, cost, time, etc…) And the policy adopted by his banker (choice of risks, guarantees, etc…).
Among the solutions proposed by banks, there is the classic credit to medium and long term.
The medium-term credit
Lasting 2 to 7 years, the medium-term loans, to finance investments, are provided either by a single bank or a bank with a specialized competition (Development Bank SMEs, etc…). There must be a link between the duration of funding and the life of the asset. Should be avoided in all cases, the duration of the loan is longer than the duration of its use as the medium-term credit finance. It therefore applies to investments such as average vehicles and machines, and more generally, for most goods and means of production of the company. The loan period must take into account the financial possibilities of the company that, in fact, during this period, must not only ensure the repayment of the loan, but the interest payments. In all cases, funding by a medium-term credit should not cover the entire investment and it makes sense that the company wants to equip to make an effort of flow. The percentage of the investment program funded by a medium-term credit is generally between 50% and 75% of the gross amount of the investment.
The granting of a medium-term credit fact, the banker, the subject of extensive study because the risk is the duration and size of the loan. We must study the market impact of the introduction of this equipment and provide the financial situation of the company, given its new production and also because of his new charges. This requires a plan projected funding that will parallel all expenses and resources of the borrower, in order to identify future opportunities for the company to meet its liabilities and thereby ensure a good outcome of operation of credit.
The analysis of credit demand in the medium term depends primarily on the study of different elements:
– Economic situation;
– Financial situation and especially profitability before the operation, during and after the operation;
– Guarantees (personal and / or real property selected based funding and the situation of the borrower).
The long-term loans
Over a period of 7-20 years, long-term loans for investment are distributed through specialized financial institutions such as the Bank for SME development, etc… For this type of funding, banks are, for the most part, with a relay role, however, in some cases, participation in risk with the lender. Specialized financial institutions provide funding for these credits on resources mainly from bonds.