The medium-term loans

The duration of the medium-term loans is of 2 to 7 years for the financial investments, and they are granted either by a single bank or a bank in competition with a specialized. There must be an association between the period of funding and the life of the asset financed.  The financial borrowing duration should not be longer than the duration of its use as medium-term financing. If it is so it should be avoided in all cases. Hence it is applicable to investments such as average length of vehicles and technology, and more generally, to most goods and means of production of the business. The loan period must be taken into account to the financial possibilities of the business. That is, during this period, company must not only ensure the repayment of the loan, but also interest payments.

In all cases, financial backing by a medium-term loan does not cover the entire investment, it is logical that the business wants to equip them to make an effort for the flow of money. The percentage of the investment program financed by a medium-term credit is generally between 50% and 75% of total investment.

The granting of loan for a medium term from the merchant banker is subject to a broad study because the risk comes from the period and volume of the loan. The merchant banker must study the market impact of the introduction of this equipment and provide the financial situation of the business, given its new production and also because of its new charges. This require  to develop a further plan for the funding that will parallel the total expenses and resources of the borrower, and more over in order to identify future opportunities for the company to meet its debts and thereby ensure a good outcome of operation of credit

Financial planning

Any company needs to invest for its creation of its new development activity. That is to say, new development activity means of production. Besides the flow of funds of its own source, the use of bank loans is the most commonly used practice.

To production every firm need raw materials, labor, and  also a variety of equipment like Land, buildings, manufacturing equipment, etc.. ; All these devices are called the production tool.

Whether for the creation or for development needs every company needs to invest. Once established, they will allow the company to produce more or better conditions, which will enable it to generate additional profits.

A company can finance its investments from internal funds, without recourse to external capital. This solution has the advantage for the company to play independent, but it has the disadvantage of limiting the company in its investment opportunities and the expansion of the company.

Therefore, the use of bank loans is the most commonly used practice because it is  easy and possible way  for almost all small and medium enterprises. However, we must recognize that this funding has disadvantages for the business. It makes the company dependent on the varieties of the distribution of credit (i.e. amount, cost, time, etc.) And the policy adopted by its banker that is choice of risk guarantees, etc.  Among the solutions offered by banks, there is the classic credit medium or long term.

Constraints of financial investments

A company has a priority, to invest its own resources. If its own sources are insufficient, the company must raise its fund as equity. The conditions of funding of productive investment depend on specific characteristics to the financial situation of the company.


 Analysis on the financial investment has long been conducted in a theoretical framework defined by the Modigliani-Miller theorem (1958). According to this theorem, it is immaterial for a company to finance its investments through debt, issuance of shares, or retention of profits. This theorem is only valid under very restrictive conditions, which in practice are not checked: the hypothesis of perfect capital markets, lack of conflict between managers and shareholders, and the absence of distortions and taxation. The strict application conditions of this theorem led to his questioning, and guided the researchers to the idea of ​​an optimal capital structure of companies. Companies are advised to go into debt to take advantage of the leverage and the tax benefit associated with debt. But the growth of debt poses a risk of failure increased. The company must decide between the benefits of debt and the cost of default risk.


The borrowing capacity of a company depends much on its capacity that it can offer, and market conditions (level of interest rates). The level of profits and the level of indebtedness of the company are the two key indicators to assess the repayment capacity of the borrower. In this way, investment is determined by the level of profits and debt.


Economic research highlights the wide diversity of investment behavior of firms. This heterogeneity is largely explained by the different financing terms offered to them. The variable profit rate and debt ratio have explanatory power and real investment by small businesses, but not for the investment of large groups. Small firms have less collateral to offer banks, and therefore more difficult to finance their investments. The constraints are more strengthened in times of slower growth or recession.

The Long term credit

The long-term funding is a funding for a period of not less than seven years. The credit is generally used to finance the purchase or construction of property of significant value, for example, buildings or industrial buildings, large equipment whose useful life is more than seven years.  It is also the capital funding for businesses, but the amortization period exceeds seven years. So it's heavy capital.

 Thus, when a company or an individual looking for a competition to fund the construction of a road, a factory or a building, it is clear that the importance of investment capital is such that reimbursement may be considered in time similar to those of medium-term credit for the good reason that the tax depreciation of these investments may not be realized in the long term.  In fact, the newly built factory will bear fruit only after several years.  It leads inevitably to the concept of depreciation that occurs and determines the time of repayment.

 It is therefore imperative, like the medium term, to focus the profitability of the company and consider the elements on: the evolution of turnover in recent years and its prospects especially future, and the cash flow of past and future, net profit after tax also past and projected.
 
Unlike the medium term, the proportion of bank intervention that is 70% or less of the total project to incur the long term is limited to 50% maximum.  All the rest of the conditions and terms for this category of credit remains the same as the medium term.

 Finally, it is clear that the classification, whether it is long-term credit or the medium term credit is only according to their duration, which is, more than seven years and can reach 20 years and over, for the long term, and between two to seven years for the medium term. The fact remains that it is closely and directly from the purpose and its funded depreciation determines the time of repayment.

US debts and the Chinese pressure!!!

China one of the largest creditor of the United States recently urged Washington to take a precautionary measures to safe guard the investors. This was given after Standard and Poor, the debt rating agency of US gave the warning. On Monday Standard and Poor’s showed the negative views about the debt situation in US. Apart from budget deficits, the main reason was no clear policy to resolve the issue.

The US government has challenged the sensational negative announcement of Standard and Poor’s views, and said the agency had under estimated the government’s efficiency. The fact remains that this deterioration in the U.S. took effect on global trade, the Shanghai falling by 1.91% Tuesday.

 According to the US government, as on August 2010, China had a total of 868.4 billion dollars in U.S. Treasuries. Hence China fears that any explosion of US debt will further weaken the American dollar which will result in a de facto devaluation of Treasury bills held by China.

By posting a negative outlook, Standard & Poor's warning seems to Beijing on the inability of U.S. policy to contain the situation, context likely to impact significantly the value of Chinese investment in dollars or even encourage an overhaul of global financial system currently focused on the dollar.

Some analysts however said China appears to have little choice, its accumulation of foreign currency forcing it to invest more than $ 50 billion out of the territory each month. Indeed there are some more alternative markets of sufficient size as that of US market is there to accommodate the Chinese fund.