Question

Identify and discuss the following forms of debt-based lending

Traditional loans

Microloans

peer to peer loans

lending circles

lending circles

Answer 1

Nowadays debt financing or debt based lending is very important for the firms to meet its expenditure. Here the borrowers will become the debtors and the lenders becomes the creditor and the debtor have the obligation to repay the debt amount to the lenders. This will be helpful for the debtors that they can have some money for the time they needed it. So the creditors will charge some interest for that at a agreed rate and this is the return which the lenders recieve. So lets discuss about some forms of debt based lending.

TRADITIONAL LOANS

Traditional loans are those which are mainly provided to the small industry. These type of loans are repaid at a incremental rate over a period of time. Tax returns and financial statements should be provided for granting term loans.

MICRO LOANS

Micro loans are small loans with small increments and these kind of loans are provided to small industries or indivuduals who earning lower income. This is actually a debt based payment system and provide basucally lower amount of money. So the interest rate will be very less in micro loans and also the principle amount is less.

PEER TO PEER LOANS

In peer to peer lending or P2P is lending method through online with the help of SWIFT( society for world wide interbank financial telecommunication. Here the banks and other financial institutions will act as an intermediate and these online service will provide lenders to the borrowers. This is how the system works.

LENDING CIRCLES

This is the circle created by many lendors together and they provide loans to each other at a very low cost. They will decide the loan amount and rate together and will lend the money to others at a low cost manner. Here the memebers will help others to meet their expenses and down payments etc.

ThankYou......