2016年ACCA知识点：Medium-Term Finance

ACCA F9考试：Medium-Term Finance

1. Bank Loans

Advantages:

The loan will be for a fixed term: no risk of early recall (unlike overdrafts that can be called).

The interest rate may be fixed.

Disadvantages:

Inflexible.

May require security.

May require covenants, which are restrictions on the company (e.g. limits on dividend payments, limits on further borrowing).

2. Leasing

Advantages:

There are many willing providers.

Remains off balance sheet if an operating lease.

Matches finance to the asset.

Very flexible packages available, some of which include maintenance.

Disadvantage:

Can be quite costly.

3. Sale and Leaseback

Under a sale and leaseback, property is sold to an institution, such as a pension fund, and then leased back to the company.

Advantages：

Funds are raised from the sale.

May improve ratios such as return on capital employed (ROCE).

Disadvantages:

No longer own the property and hence cannot participate in any future increase in value.

Risk of lease payments increasing.

4. Mortgage Loans

A mortgage loan is a loan secured by property.

Advantages:

Given the security, the loan will have a lower rate of interest than other debt.

Institutions will be willing to lend over a longer term.

Still participate in the growth of the property's value.

Disadvantage:

Default may result in a key asset being liquidated.