A. What are the major types of bank loans available in the market?

A. What are the major types of bank loans available in the market?

Fixed-term loans

A fixed-term loan is a contract for the borrowing of a specific amount of money that is repaid over a specified period of time. Depending on the terms of the loan agreement, the borrower may only be permitted to draw the entire sum of the loan in one lump sum or may be permitted to make multiple drawdowns, and in case of multiple drawdowns it is common for banks to require the minimum amount of each drawdown. In the case where multiple drawdowns are allowed, the key feature of a fixed term loan is that the borrower may not re-draw the portion of loan the borrower has previously drawn after that portion has been repaid. 

Revolving loans

As opposed to a fixed-term loan, a revolving loan allows the borrower to reborrow the repaid sum. The mechanism of a revolving loan is that the lender determines the borrower’s credit limit, i.e. the maximum amount that the borrower can draw under the revolving loan. The borrower can repay any amount drawn and reborrow the repaid amount, as long as the borrowed sum does not exceed the borrower’s credit limit. In general, revolving loans are known for their flexibility as their repayment and drawdown mechanism are less rigid than those of fixed-term loans. Such flexibility makes revolving loans popular among corporate borrowers that have ongoing financing needs.

Bridge loans

A bridge loan is a short-term loan for providing immediate cash flow. This is usually with short maturity until the borrower is able to secure some longer-term financing from other sources. An example of when a bridge loan may be used is when the same person is buying one property and selling another but the two events do not occur concurrently. 

Committed or uncommitted loans

A loan (whether being a type of loan mentioned above or otherwise) may be committed or uncommitted. 

Under a committed loan: 

1. The lender is required to make available the loan if certain conditions precedent requirements are satisfied and there is no subsisting default; and 
2. The borrower is required to repay borrowed amounts in accordance with the repayment terms set out in the facility agreement, unless an event of default has occurred. If an event of default has occurred, the lender may accelerate the loan and demand immediate repayment of the loan. Please refer to the discussion on default for details. 

A committed loan usually lasts for a longer duration than an uncommitted loan and requires a commitment fee. 

Under an uncommitted loan, the lender retains an absolute discretion to lend (or to refuse to lend) money to the borrower and demand immediate repayment of the amounts borrowed at any time, even when there is no default.