## Loans from Commercial Banks
### Evolving Role of Commercial Banks
Traditionally, banks provided only short-term finance. Today, they also extend long-term loans for:
- Business expansion and new projects
- Fixed asset acquisition
- Permanent (core) working capital needs
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### Types of Long-Term Bank Finance
#### 1. Term Loans
- Repayable over several years in installments
- Amount linked to the anticipated income of the borrower (debt service coverage)
- Used for fixed asset purchase or capacity building
- Most common form of bank-based long-term finance
#### 2. Working Capital Term Loan (WCTL)
- Funds the permanent/core portion of working capital (not seasonal fluctuations)
- Always required by the business → treated as quasi long-term finance
- Repaid over an extended schedule, unlike revolving working capital limits
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### Bridge Finance
Definition: A short-term loan taken from a commercial bank to fill the funding gap between sanction and disbursement of a long-term institutional loan.
| Feature | Detail |
|---|---|
| Purpose | Temporary funding until the sanctioned term loan is actually disbursed |
| Repayment | Repaid immediately when the term loan proceeds are released |
| Security | Movable assets / personal guarantees / promissory notes |
| Interest Rate | Higher than normal term loan rates (due to urgency and short-term nature) |
> Key insight: Bridge finance is a gap-filler, not an independent financing strategy. It bridges the time gap between sanction and actual receipt of funds.