15 Feb Borrowed funds are generally referred to as loans
The process of using borrowed, leased or "joint venture" resources from someone else is called leverage. Using the leverage provided by someone else's capital helps the user business go farther than it otherwise would. For instance, a company that puts up $1,000 and borrows an additional $4,000 is using 80% leverage. The objective is to increase total net income and the return on a company's own equity capital.
· in payment terms, e.g. instalment versus single payment · in period-of-payment terms, e.g. short-term versus intermediate-term or long-term · in the manner of its security terms, e.g. secured versus unsecured · in interest payment terms, e.g. simple interest versus add-on, versus discount, versus balloon.
On the basis of the above classification, there are twelve common types of loans, namely: short-term loans, intermediate-term loans, long-term loans, unsecured loans, secured loans, instalment loans, single payment loans, simple-interest loans, add-on interest loans, discount or front-end loans, balloon loans and amortised loans.