Loans, Charges, and Other Interests

What are Loans, Charges, and Other Interests?

A loans, charges and other interests list provides financial information on the loans borrowed by your company from third parties. It also specifies the terms and conditions of such arrangements, along with other information, including:

• Lender Details: Name of the lender, start and end dates of the loan agreements, current amount outstanding and total stake owned by the lender
• Loans and Charges: Amount, type and tenure of loans borrowed by your company and additional charges; documentation, stamp duty and interest
• Lines of Credit: Predetermined amount borrowed by your company, payable in multiple installments (similar to a credit card) and the associated charges and tenure
• Mortgages: Debt borrowed by your company by leveraging collateral assets (e.g. real estate), applicable interest rates and repayment terms and tenure
• Security Deposits: Deposit made with a third party, either as an initial payment to purchase an asset in the future or as an advance deposit for the rent of an asset
• Security Interests: A legal right granted to a creditor over a debtor, to claim on collateral assets if the creditor defaults on payment
• Debentures: Debt borrowed by your company without leveraging collateral and the applicable interest rates and repayment terms and tenure

Why is Loans, Charges, and Other Interests important for business today?

A loans, charges and other interests list enables your company to:

• Determine the total outstanding amount owed to third parties and the available lines of credit ( excluding trade credit)
• Evaluate the collateral that has already been provided in support of existing loans
• Assess the frequency and amount of loan installments for the upcoming month, quarter and year
• Assess the charges, interest rate and maturity dates of various loans and comply with their terms and conditions

Why is it important for an event tomorrow?

A loans, charges and other interests list is important for an event tomorrow, as it helps:

• Determine your company’s outstanding loan amount, interest rate, associated charges, loan duration and type of loans borrowed
• Determine your company’s ability to raise additional loans using different debt and equity instruments
• Evaluate your company’s compliance with loan terms and conditions and your ability to deal appropriately with various lenders
• Measure the future repayment capability of your company and your credit scores
• Reduce the time and cost of due diligence by providing an up-to-date summary of the key credit metrics

Pros of addressing Loans, Charges, and Other Interests

• Mitigates the legal and financial risks by tracking the amount borrowed and repaid, as well as interest and other charges
• Helps the preparation of your company’s balance sheets and financial statements
• Acts as a foundation for formulating and implementing rigorous internal processes to manage loans and relationships with lendersSafeguard the ownership and management of your company
• Assists in financial decision-making by employees through having a readily accessible table of key debt metricsAssess the expenses for permits required to engage in a business activity across jurisdictions
• Facilitates the benchmarking of the interest rates offered by your lenders against other market playersAssist in contracting with third parties as per the guidelines and avoid any defaults
• Reduces due diligence time and cost associated with assessing the company’s debt position

Cons of not addressing this topic

• Increased financial risk as financial liabilities and their maturity dates are not tracked
• More difficult to establish rigorous internal processes for managing loans and lenders
• Restriction on your company’s ability to identify cash flow requirements to meet loan obligations
• Increased due diligence costs for both potential investors and management.