Investment credit or investment loan is a credit product provided by banking institutions with the aim of helping investors or business owners finance the construction of new projects or fund the expansion of existing projects. Most investment loans are used to finance the procurement of buildings, machinery, land, equipment, office inventory, infrastructure and initial working capital.
Investment loans are different from short-term corporate loans as well as working capital loans, which are mostly used to finance the increasing needs of companies or businesses, especially in terms of inventory and trade receivables. Investment credit or investment loan is often also referred to as a project funding facility or project financingng facility because it is the main target is to help fund projects that require very large funds.
However, funds issued by banks in the form of investment loans are not entirely in accordance with financing needs but only in part. In this case, the main source of financing must still come from the business owner himself or equity financing, investors or shareholder loans. In most cases, investment loans get the largest percentage of the total cost of development or projects, it can be 60 or even up to 80 percent of the total costs needed.
Different from other types of credit, investment loans are given in tenures or relatively long periods of time. Some banks even offer tenors of up to 15 years. The tenor is adjusted to the purpose of using the funds, which is to help finance the procurement of the company’s fixed assets which will generally be used for a relatively long period of time.
Another important thing to understand is that most banks offering investment credit products provide a grace period for repayment of loans obtained by debtors. The grace period is generally adjusted to the period needed by the debtor to complete the project and carry out a trial period. During the construction period, banks often also provide a grace period of interest payments that can be used by the debtor.
Payment of investment loans
It is generally done in installments or installments. Installments begin when the installment payment period ends. For installment payment schedules can vary – each bank, there are those that apply a monthly, quarterly, semester system and some even use the annual method.
For the amount of funds needed by each debtor in general varies, depending on the business sector they work at. For example, the amount of funds needed by a company engaged in mining will certainly be far greater when compared to the needs of companies engaged in the handicraft industry.
Investment credit facility
In the investment loan product there is also an investment credit facility commonly referred to as a Long Term Acceptance or Term Loan which is a credit facility provided to debtors who take credit for more than 1 year. In this facility, debtors are allowed to withdraw funds simultaneously or gradually depending on the agreements made previously with the creditor. According the payment can be done in installments or gradually.
The following are the types of Term Loan facilities based on the method of repayment or payment:
- Term Loan or TL
Ie, an investment credit facility where the payment is done in stages or in installments or installments
- Term Loan Grace Period (TLG)
That is a facility in investment credit where the method of payment only covers credit interest because the principal and interest begin at the end of the Grace Period.
- Home Term Loan (TLP)
That is a facility in an investment credit where the payment is done in stages or in installments with the same principal amount every month and interest payments follow the outstanding.
It must be understood that the greater the number of loans obtained from investment loan products, the risk that must be borne will also be even greater, especially considering the credit tenure is fairly long. Even so, if it turns out that the assisted project is running well and produces good profits, then this credit product can be one source of income that is very beneficial to banking institutions. That is because the interest earned from investment loans will be obtained in the long term according to the tenor loan taken by the debtor.