CHAPTER 4
CLASSIFICATION AND SOURCES OF CREDIT
THERE ARE TWO IMPORTANT PURPOSES IN THE CLASSIFICATION OF CREDIT.
First, AS QUICK AS TO GUIDE TO THOSE WHO NEED THEM, AS TO WHERE AND HOW TO GET
THEM
Second, to guide those who provide them as to where to find these users of funds (segment
marketing
Credit is generally classified according to purpose from where the loan funds are intended to be used:
AGRICULTURAL CREDIT
The term agricultural credit refers to one of several credit vehicles used to finance agricultural
transactions. These vehicles include loans, notes, bills of exchange, and banker's acceptances.
This type of financing is specially adapted to the specific financial needs of farmers and allows
them to secure equipment, plant, harvest, marketing, and do other things that are necessary to
keep their farms running.
Time loan - A loan that must be repaid by a certain, stated date. For example, a time
loan's terms may state that all interest and principal must be repaid within six months.
Crop loan - are a type of short-term advance offered pre-dominantly by primary co-
operative societies within the area, to cover the cost of cultivation. It can be used for
purchase of quality seeds, fertilizers, manure, etc. This loan can be repaid once the
crops have been harvested.
Commodity or quedan loans - a loan made to producers of commodities, whereby the
trader buys commodities on credit and returns the loan after the commodities are sold
COMMERCIAL CREDIT
Commercial credit is a pre-approved amount of money that a company can borrow to meet
various financial obligations.
The funding of day-to-day operations is typically one of the main uses of commercial credit.
Commercial credit is usually offered as a revolving line of credit, which is either secured or
unsecured.
INDUSTRIAL CREDIT
Loans used to finance the construction of factory buildings or the purchase of machinery and
equipment. In this category are bonds (20 to 30) years and long-term bank loans.
CONSUMER CREDIT
These are loan funds granted to individual by banks, coops, department stores, credit card
companies, savings and loans associations, the GSIS and SSS (for salary loans), Pag-Ibig for
multipurpose loans.
It could be in the form of cash or it could be in the form of merchandise (appliances, groceries)
COMMODITY LOANS
For non-farm products, using warehouse receipts Commodities or goods are either finished
product or raw materials.
FINANCIAL INTERMEDIARIES
Is an institution or individual that serves as a middleman among diverse parties in order to
facilitate financial transactions.
It is either intermediaries or non-intermediaries
EXAMPLES OF FINANCIAL INTERMEDIARIES
BANKS
COMMERCIAL
SAVINGS BANK
RURAL BANK
INSURANCE COMPANIES
PRE-NEED COMPANIES
PENTION/RETIREMENT FUNDS
SSS
GSIS
RSBS
PRIVATE PENTION FUNDS
INVESTMENT BANKS, LEGALLY REQUIRED NOT TO USE THE WORK “BANK” AND ARE KNOWN
AS INVESTMENT HOUSES
FINANCING COMPANIES
CREDIT COOPERATIVE
NON-FI SOURCES OF CREDIT
APPLIANCES COMPANIES/CAR DEALERS
PAWNSHOPS
LENDING INVESTORS
EMPLOYERS
DEPARTMENT STORES
SHORT (1 YEAR OR LESS) AND MEDIUM-TERM (1 TO 5 YEARS)
PROVIDERS:
1. Suppliers of raw materials & finished goods merchandise
Terms used:
Suppliers Credit
Frequent Users:
Manufacturing, Wholesalers and Retailers
2. Commercial Bank (Universal Bank)
Term Used:
a) Lines of Credit
b) Revolving Credit Agreements
c) Letters of Credit and trust receipts for LC/TR)
d) Packing credit advances)
Frequent Users:
All Business
3. Large Corporation with seasonal excess cash
Terms Used: Frequent Users:
Commercial Paper Large Companies with seasonal cash deficits
4. Finance Companies
Terms Used: Frequent Users:
a) Pledge of accounts receivables (a loan) Appliance cos.
b) Factoring (sales of receivable) Wholesalers and manufacturers
5. Individual& Corporations
Finance Companies agreements
Terms Used Frequent Users
a) Treasury bills Government
b) Repurchase Finance Companies
LONG TERM OVER 5 YEARS
PROVIDERS
1. Pension Funds, Insurance co.s
Term Used Frequent Users
Treasury Funds Government
2. Corporations and individual pension funds, insurance companies
Terms Used Frequent Users
Corporate Bonds Large Corporations
3. Commercial Banks, Wealthy Individuals Pension Funds, Insurance Companies
Term Used Frequent Users
Investment or Industrial Credit Manufacturers
Building factory and equipment loans bonds Wholesaler
4. Finance Companies
Term Used Frequent users
Equipment leaseback Manufacturers
