Financial Management: Core Concepts, Third Edition

15.3 Borrowing for a Stable and Mature Business: Bank Loans

The second phase of borrowing is usually connected directly with commercial banks through lines of credit, bank loans, and syndicated loans. Many times these borrowing arrangements are intended for the operations of the firm (short-term financing) and not necessarily for its long-term growth or expansion. As we saw in Chapter 12, some types of loans, such as lines of credit, are intended to enable a company to work through the short-term fluctuations of cash on a daily basis rather than providing funding for expansion. Larger loans from banks or syndicate loans (explained later) are intended for business expansion.

Let’s start with the simplest of the borrowing avenues, a bank loan. ...