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8/18/2019 Finance Project Ppt.
1/48
University of Cebu Lapu-Lapu &
Mandaue,
Looc Mandaue City, Cebu Philippines
PROJECT in FINANCE
Kinds of Credit & Sources of Credit
Submitted by:
JULEVIE ! "#$UC%
I'% MI"C(EL M! L%)E*
M#)+ E P! P)EM#CI%
Submitted to:
$E)'#)# M! P#'IL##', CP#
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According to Type of User
! Consumer Credit
- is a debt that so.eone incurs for the purpose of
purchasin/ a /ood or service! "his includes purchases
.ade on credit cards, lines of credit and so.e loans!
- 0ind of credit e1tended to consu.ers in order to
facilitate the process of consu.ption!
- also called as 2consumption credit3
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Consu.er credit is basically the a.ount of
credit used by consu.ers to purchase non-invest.ent
/oods or services that are consu.ed and 4hose value
depreciates 5uic0ly! "his includes auto.obiles,
recreational vehicles 6)Vs7, education, boat and
trailer loans, but e1cludes debts ta0en out to
purchase real state or .ar/in on invest.ent accounts!
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There are two types of Consumer Credit
! Install.ent Credit
- the consu.er .ust repay the a.ount o4ed in
specific nu.ber of e5ual pay.ents
8! 'oninstall.ent Credit
- is a sin/le pay.ent loans and open-ended credit
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Reasons for Consumer Credit
"his type of credit arises as a result of certain .otives!
! "he desire for convenience!8! "o i.prove one9s standard of livin/!
:! "he product of necessity!
;! or e.er/encies
=! "o .a0e reservations!
>! "o ta0e advanta/e of free credit!
?! "o consolidate debts!
@! or protection a/ainst rip-offs and fraud!
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Retail Credit
is a typical e1a.ple of consu.er credit, 4hich
is held synony.ous 4ith one another as 4ith
personal credit! "he use 4hich is obtain throu/h
char/e account and install.ent credit!
Charge Account & Installment Credit Compared
a7 Install.ent buyin/ is lar/ely confined to durable
consu.er9s /oods, 4hile purchases on a char/e
account!
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b7 "he title to /oods purchased on install.ent does not
pass to the buyer until the last install.ent pay.ent has been .ade!
c7 In the event of failure on the part of the buyer to pay
the .onthly install.ent pay.ents!
d7 oods bou/ht on the install.ent plan are paid by
.eans of a series of e5ual pay.ents 4here several
purchases of /oods bou/ht on char/e account are .ay
be paid in one lu.ps!
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e7 Custo.ers 4ho buy on install.ent plan al4ays have
to pay a 2carryin/ char/e3, 4hich usually includes
interest and collection char/es!
f7 # for.al credit investi/ation of the buyer 4ould be
on install.ent plan is underta0en by sellin/ concern
before it decides to /rant credit!
/7 oods bou/ht on the install.ent basis /enerally, on
account of the considerable a.ount and a/ree.ent
4hich is not observed in the case of char/e account!
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Replevin
Ahen an article is sold under an install.ent
contract, and the buyer later fails to live up to his part
of the contract, the seller, in order to protect hi.self
fro. loss, has the ri/ht to repossess the article!
!
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2TRUTH IN LN!IN" ACT#
"his la4 provides any creditor shall furnish to
each person to 4ho. credit is e1tended, prior to the
consu..ation of the transaction!
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The following are the rules and regulation of the
$onetary %oard
!"he cash price of the property or services to be ac5uired
8! "he a.ount to be credited as do4n pay.ent or trade in!
:!"he difference bet4een the a.ount set fourth under
clauses 67 and 687!
;! "he char/es , individually ite.iBed, 4hich are paid or
to be paid by such person in connection 4ith thetransaction but 4hich are not incident to the e1tension
of credit!
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>! "he percenta/e that the financed char/e bears to the
total a.ount to be financed e1pressed as si.ple
annual rate on the outstandin/ unpaid balance of the
obli/ation
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8! $ercantile Credit
# pre-approved a.ount of .oney issued by a
ban0 to a co.pany that can be accessed by the
borro4in/ co.pany at any ti.e to help .eet variousfinancial obli/ations! Co..ercial credit is co..only
used to fund co..on day-to-day operations and is
often paid bac0 once funds beco.e available!
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$usiness .ay be e1tend to another 4hen sellin/
/oods on ti.e for resale or co..ercial also called as2commercial credit3 , a type of credit by one use!
Co..ercial credit is often used by co.panies to help
fund ne4 business opportunities or to pay for
une1pected char/es!
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:! %an' Credit
refers solely to the credit /iven by co..ercial
ban0s to business.en intended to assist then in the
operation of their business!
# ban0 credit is the a.ount of credit available to
a co.pany or individual fro. the ban0in/ syste.! It
is the a//re/ate of the a.ount of funds financial
institutions are 4illin/ to provide to an individual or
or/aniBation!
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A Revolving Credit
# revolvin/ credit is a line of credit 4here
the custo.er pays a co..it.ent fee and is then
allo4ed to use the funds 4hen they are needed! It is
usually used for operatin/ purposes, fluctuatin/ each
.onth dependin/ on the custo.erDs current cash flo4
needs!
is a co.bination of the char/e account and the
install.ent plan
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;! Investment Credit # business or/aniBation for the purchase
of fi1ed assets or to carry .ini.u. business
operation!
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Five major sources are availale from!"ic" funds for lon#$term investmentma% e secured
1. Fund of individual investors.
2. Trustees of funds of individuals and
estates.
3. Insurance companies.
4. Banin! institutions and"
#. Business concern.
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According to whether merchandise or money
is given
! $erchandise Credit %ther types of credit 4here the custo.er
obtain /oods or .erchandise in e1chan/e to his
pro.ise to pay the. at a later date!
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8! %orrowing $oney
$esides the pressin/ necessity of obtainin/
/oods and services on credit, consu.ers are li0e4ise
confronted 4ith the need for .oney 4hich they try to
obtain throu/h borro4in/!
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According to purpose
! Agricultural Credit
"hose loans 4hich are intended for the
ac5uisition of fertiliBers, pesticides, seedlin/s, and
any instru.ents, .achinery, and other .ovable
e5uip.ent used in production, processin/,
transfor.ation, handlin/ or transportation ofa/ricultural products!
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Commodity Loans the 4ord co..odity can be
defined as 2any article or product use in trade or
co..erce as collateral3
8! (port Credit
E1port trade .ay be pushed by .eans of
e1tension of credit to buyers, as is the co..on practice
and done on the basis of arrival of /oods , but beforethe buyer ta0es possession of the.!
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:! Industrial Credit
Intended for financin/ the needs of industries
li0e lo//in/, fishin/, .anufacturin/, and others , and
4hich involves bi/ a.ounts of .oney!
;! Commercial Credit
"his type of credit, 4hich is so.eti.es ter.ed
as a .ercantile credit!
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Ahen credit is secured purposely for
construction, ac5uisition, e1pansion, or i.prove.ent
of real state properties , it is ter.ed as a real state
credit!
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According to maturity
! # short ter. credit is payable 4ithin one year fro.
the date of ac5uisition!
8! Mediu. or inter.ediate ter. credit t ran/es fro.
one year to five years in .aturity!
:! Credits 4hich are intended fro. five years up belon/
to the cate/ory of a lon/-ter. credit!
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"*+RN$NT *R ,U%LIC CR!IT
Public Credit .eans a pled/in/ of the /oods
faith and the resources of the nation for the repay.ent
of a debt incurred on behalf of the people! Public debt
consist of all clai.s a/ainst the /overn.ent 4hich
.ay be payable in /oods and services, but usually in
cash!
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) * U R C )
A N ! %
A ) I ) * -
C R ! I T
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! Individual $oney Lenders
%ne of the sources of credit is the individual .oneylender 4ho .ay e lend his surplus to those in need so
that it 4ill brin/ so.e inco.e to hi.!
"he unlicensed .oney-lender, 4ho is often referred to
as a 2loan shar03, does a thrivin/ business in the /rant
of loans at every e1horbitant rates of interest!
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8! Retail )tore
Easily the bi//est source of .erchandise credit in
the Philippines is the retail store, .ore particularly in
2sari-sari3 store!
:! ,awnshops
Pa4nshop is the oldest credit institution in China!
In the Philippines , pa4n bro0in/ is also one of theoldest credit institutions and had been introduced by
*panish friars 4hen 4e re under the Cro4n of *pain!
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4.$ommercial %aper &ouse - t'e commercial paper 'ouse
is a (nancial institution t'at brin!s to!et'er t'e buyerand seller of s'ort-term commercial paper " t'at is t'e
lendin! institutions and t'e borro)in! enterprise.#.Savin!s Ban - since savin!s ban accumulate t'e smallsavin!s of depositors" suc' accumulated funds are Inturn invested in bonds or in loans secured by bonds realstate mort!a!es " and ot'er forms of security.
*.$ommercial Bans - commercial bans are en!a!ed int'e !rant of loans not only to businessman" but also toindividuals for personal purposes.
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.+ural Bans , provide t'e c'ief sources of creditespecially for t'ose en!a!ed in a!riculture )'oneeds t'ese facilities badly.
.evelopment Bans - lie t'ose of rural bans"development bans form an important part ofour banin! system e/tendin! t'e necessaryfund for purposes of 'astenin! development.
0.Investment Bans - at time termed as investment'ouses brid!e t'e !ap bet)een t'ose )'o 'aveidle funds not no)in! )'ere to invest t'em
and t'ose in dire need of suc' funds.
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.Savin!s and oan ssociations - t'at corporation en!a!ed int'e business of accumulatin! t'e savin!s of t'eir membersas stoc'olders" and usin! suc' accumulations" to!et'er )it't'eir capital in t'e case of stoc corporations" for loans and
for investments in t'e securities of productive enterprises orin securities of t'e !overnment or any of its politicalsubdivisions" instrumentalities or corporations.
1.Finance $ompanies - as an industry it s'ares )it' t'e!overnment t'e universal !oal of ac'ievin! a stron! and
'ealt'y (nancial system . It 'as t'ree cate!ories 51.6 t'einstallment sales (nance companies52.6t'e consumer (nancecompanies53.6commercial (nance companies.
11.$redit 7nions - are corporate or!ani8ation )'ic' lend savin!sto some members of t'e !roup.
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12.Insurance $ompanies - t'e business of insurancecompanies is to enter into insurance contacts )it' t'ose )'o)is' to provide suc' contin!encies as deat' or (re. T'eyreceive premiums and pay out money on t'e occurrence of
t'e particular contin!encies covered by t'e contracts.
9T&+ S97+$S
Social Security System
;overnment Service Insurance System
Industrial ;uarantee oan Fund!ricultural ;uarantee oan Fund
T'e %a!-Ibi! Fund
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BSS 9F $+IT
1.$an t'e customer pay 'is bill )'en it becomes due=
2. >ill 'e pay )'en it comes due=
.$?s of credit
1.$&+$T+
T'e c'aracter of t'e borro)er indicates 'is)illin!ness to disc'ar!e 'is (nancial obli!ation t'at
is to repay t'e loan as promised.2.$%$IT@
as basis of credit capacity si!ni(es t'e abilityto pay )'en a debt is due.
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3.$%IT
for credit purposes credit represents t'e(nancial stren!t' of t'e ris t'at is it consistof t'e amount and Auality of !oods andproperty e/pressed in terms of money )'ic'an individual or (rm possesses over andabove 'is (nancial obli!ations.
4. $9T+
must t'erefore be somet'in! of value)'ic' can be easily converted into cas'
deposited as pled!e )it' a lender to secure
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econo.ic conditions e1ert profound effectupon the /rant of loans and credits it .ay be ri/htly
.entioned that loans and credit .ay be e1tended at
certain ti.es and .ay be denied at other ti.es!
=! Country
*ince, as had been stated ti.e and a/ain, the sale of
/oods and services in any part of the 4orld on credit involves
ris0, it follo4s that every factor should be carefully considered
and scrutiniBed in so far as they affect credit ris0!
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>! Currency 'ot only is the stability of the country of
i.portant an i.portant factor to rec0on 4ith in the
consideration of credit ris0 in international tradetransactions but, e5ually so is that 4hich pertains to
that of currency! "he ris0 .ust also be ta0en into
account!
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?! Confidence
Credit is founded on confidence 4hich by far is
the principal C of credit! or any credit transaction to
ta0e place, the business 4hether he be a seller of
/oods or services on credit .ust have confidence!
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$! -inancial )tatement
# financial state.ent is a report su..ariBin/ the
financial results of an or/aniBation on any data or
record! inancial state.ents of the individual fir. are
the .ost source of financial data!
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C! Credit ,olicy Credit policies .ay vary fro. one business
enterprise to another! %ne relates to the type of
custo.ers 4ho are to be /ranted credit! %ne fir. .ay
be pri.arily interested in increasin/ the volu.e of
sales! It therefore /rants credit to all applicants and
runs the ris0 of so.e losses! %thers ta0e the
e1traordinary precautions in /rantin/ credit that could
reduce their sales volu.e!
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, a r t s o f C r e d i
t , o l i c y
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! Credit Terms
Is .eant the ter.s and conditions under 4hich
the credit is /ranted! It includes the ti.e 4hen
pay.ent .ust be .ade discounts, if any 4ill allo4 for
pro.pt pay.ent!
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8! Credit ,eriod
It refers to the len/th of ti.e 4ithin 4hich the
custo.er is e1pected to re.it pay.ent in part or in
full! If this period e1pires before pay.ent has been
.ade, the account beco.es delin5uent!
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:! Credit Limit # li.it 4ith respect to the a.ount or value that a
custo.er can obtain fro. the fir.!
#! .uantitative Credit Limit
Indicates the sellerFs Gud/.ent of the a.ount of
debt that a custo.er can incur and pay his fir.!
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$! Temporal Credit Limits
"ype of credit li.it 4hich does not lessen thea.ount of credit to 4hich a prospective borro4er or a
debtor .ay avail hi.self provided certain stipulated
re5uire.ents are accordin/ly .et and co.plied 4ith!
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, ! ) o u r c e s o f C r e d i t
I n f o r m a t i o n
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! *ources of credit infor.ation .ay be obtained fro.H
interviews with the applicant/ availing theservices of a mercantile agency 4hich has bees
established pri.arily to ascertain the credit position
of financial institutions, corporations, fir.s and
individuals!
8! Credit infor.ation .ay also be had throu/h the useof financial state.ents re5uired of applicants to
furnish their prospective creditors.
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:! Credit Mana/e.ent #ssociation of the Philippines
involvin/ .ore particularly those concernin/ frauds
and other for.s of dishonesty co..itted by
applicants for credit!