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CS Professional · Strategic Management and Corporate Finance · Raising of Funds - Private Funding

A company wants to borrow a fixed sum directly from a bank under a sanction letter, repayable in agreed instalments over five years with interest. In corporate finance, this form of private debt funding is best described as a:

The arrangement is a term loan. A bank lends a fixed amount privately, and the borrower repays it in agreed instalments over a stated tenure with interest. It is not a public debenture issue, a rights issue or short-term commercial paper.

  1. ATerm loanCorrect
  2. BPublic issue of debentures
  3. CRights issue of equity shares
  4. DCommercial paper programme

Explanation

A term loan is a loan from a bank or financial institution for a fixed amount, with a set tenure, interest and repayment schedule. A public debenture issue raises money from the public through an offer document, and a rights issue raises equity from existing shareholders. Commercial paper is a short-term unsecured money market instrument, so it does not fit a five-year instalment loan.

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