NEGOTIATED

SOURCES
 Unsecured Short-term Credit
• What is an Unsecured Loan?
• An unsecured loan is a loan that is issued and supported only by
the borrower's creditworthiness, rather than by any type of
collateral. Because unsecured loans, sometimes referred to as
signature loans or personal loans, are obtained without the use of
property as collateral, the terms of such loans, including approval
and receipt, are most often contingent on the borrower's credit
score.
 Commercial Bank Loan

• This is a short-term business credit provided by

commercial banks, requiring the borrower to sign a
promissory note to acknowledge the amount of debt,
maturity and interest.
 Commercial Bank Loan

• A. Line of credit
• B. Transaction loan
• C. Effective interest rate
 A. Line of Credit

• The bank agrees to lend up to a maximum amount of

credit to a firm.
REVOLVING CREDIT AGREEMENT- the bank makes
a formal contractual commitment to provide the maximum
amount to a firm.
 B. Transaction Loan
• This is a short-term credit for a specific purpose.
COST OF BANK LOANS
• Regular interest rate
• Discounted interest rate
• Effective interest rate
REGULAR INTEREST RATE
DISCOUNTED INTEREST RATE
EFFECTIVE INTEREST RATE
 Commercial Paper

• Commercial paper is an unsecured, short-term

debt instrument issued by a corporation, typically
for the financing of accounts payable and
inventories, and meeting short-term liabilities.
Cost of Commercial Paper
Example:
• Cat Gray Corporation plans to issue P 500,000,000 in commercial
paper for 180 days at a stated, discounted interest rate of 10%.
• Dealers of the commercial paper usually charge P 200,000 in
placement fees and flotation costs. (Use 360 days in a year)
• What is the effective annual interest rate?
Given:

• Interest cost per period - 25M

• Usable loan amount - 474.8M
• Number of days in a year - 360
• Number of days funds are borrowed - 180
Solution: