The fact that term Installment Loans Online are credits extended to business concerns serves to differentiate them from many other types of loans, also having terms of more than one year, that are made by commercial banks, insurance companies and other financial institutions. The salient factor is that the term lender usually appraises the probabilities of financial success of a business enterprise in judging the likelihood of repayment of the loan at maturity. Thus the definition of term loans ex cludes consumer loans, where attention is focused on the moral and financial worth of an individual—who is not necessarily an entrepreneur. Also excluded are loans to individuals se cured by mortgages on residential property. In making loans 1 Some writers would add that a “term loan” is amortized out according to a prescribed plan. Although the majority of term loans are repaid in instalments, it appears unwise to limit the definition in this way for reasons stated subsequently of this type the lender customarily looks to the value of the pledged In contrast, even where term loans to busi nesses are collaterally secured by real estate or other property, the lender generally looks mainly (or exclusively) to the earning power of the business rather than to the value of pledged property to protect himself against loss. The col lateral security given by a business concern is usually of a spe cialized type that cannot be liquidated by the lender to realize any certain amount in case of default.
Term Loans Involve a Direct Relation Between Borrower and Lender. The circumstance that term loans involve a direct relation ship between borrower and lender serves to distinguish them from corporate bonds and debentures sold to investment bankers for public distribution. Although such securities generally mature more than one year after date of issuance, and are like term loans in this respect, there is no direct relationship between the borowing enterprise and its creditors. Almost invariably these bonds or debentures are accompanied by trust indentures requiring the appointment of trustees to act for all security holders. In all likelihood individual security holders are unknown to the borrower. The term loan is unique in being a medium-term credit, usually accompanied by a formal loan agreement between borrower and lender, but retaining that direct and intimate connection between business concern and financing agency that has always been associated with the busiess loan activities of commercial banks.
“Private placements” of corporate securities with insur ance companies and other institutional investors resemble term loans more closely than they resemble publicly marketed debt securities. Private placements may involve use of the same legal forms as those employed in the traditional investment banking operation but they dispense with registration under the Securities Act of 1933, and short-circuit underwriters and security dealers who perform the function of breaking up large loans into small units for wide distribution for Installment Loans Online.