Finance and refinancing

Finance and refinancing

Finance means that in some cases, the seller does not want to receive the goods in the form of long-term letters of credit. On the other hand, the buyer is not able to pay letters of credit due to lack of liquidity. In this case, the buyer usually asks a bank or financial institution This method of payment is called financial financing and the institutions providing the funds are called financial financiers.

Financing * Long-term documentary credit

Finance literally means “finance” or financing, and in the discussion of investment refers to financing through the use of internal resources or receiving and using foreign currency loans.

The duration of using the financial facility usually varies between 1 to 3 years and the repayment period varies between 5 to 15 years for different plans.

Refinancing * Short-term documentary credit

The use of short-term interbank facilities (usually one year) is called refinancing.

Using the resources of branches abroad and the resources of foreign banks, banks pay short-term foreign currency facilities in the form of refinancing credit lines, considering that the interest rate of such facilities is very low compared to the interest of Rial facilities, effective help for importers to reduce costs. The goods will be finished.

The period of using the short-term facility is a maximum of one year from the time of the transaction of the documents. Refinancing facilities can also be used in the form of (three, six, and nine months) provided that a special credit line with conditions of less than one year is located in the operating bank.

The difference between financing and refinancing facilities

1- The maximum period for granting refinancing facilities is up to one year and for financing is more than one year.

2- Repayment of facilities to foreign banks in refinancing is guaranteed by commercial banks and in financing by the central bank.

3- Financing facilities are used for purchasing and constructing capital projects and equipment, production line machinery and services including installation, training and technical knowledge, while refinancing facilities are used for importing certain goods determined by the bank.

4- Users of financing facilities include natural persons, legal entities, ministries, organizations and government companies, but in refinancing facilities, in addition to natural and legal persons, companies and organizations affiliated to the government, if from the general budget of the country in general or They do not use to register a special order and will be subject to using this facility.

Weaknesses:

Obtaining heavy securities by banks

Expensive use of financial facilities

Non-participation of banks in providing Rials

Lack of awareness of industrial investors about finance

Educational weakness that is crystallized in the disability of experts

Lack of coordination between different government agencies in charge of financing

Lack of books, publications, films and tapes on finance

Lack of foreign exchange futures market

Power points

Use of financial facilities as supervised loans

The right to choose up-to-date and appropriate technology by the executors of industrial projects

Possibility to use international financial resources