MONEY AND FINANCE

Demand Loan Definition

Demand Loan Definition

Loans come in all shapes and sizes. One particular loan that many businesses use is called a demand loan. The concept is relatively simple.

A demand loan is an agreement providing the lender the ability to demand full payment of the remaining balance of the loan at any point in time after the loan is executed. The loan terms virtually allow the lender to demand full payment, hence demand loan.

While the borrower enjoys relatively easy qualifying terms and an open-ended repayment schedule, the lender enjoys significant benefits. For example, periodic finance charges coupled with interest charges on the outstanding balance. These charges can be significant meaning the lender is enjoying a handsome return on investment.

Because this type of loan can be called at the lender’s discretion, the lender can take action to minimize potential losses. This loan type allows the lender the ability to gauge the business cycle and related business activities to determine a possible downturn in economic, political or other changes. The obvious benefit is the lender can call the loan and obtain the balance of the loan before the downward spiral ensues.On the other hand, if the economy is in good shape, the borrower benefits from making token payments on an irregular schedule. If a payment schedule has been implemented, the borrower will enjoy a relaxed payment schedule.

Another term for demand loan is a call loan. The terms and conditions, regardless of what the loan is called, will be the same. Whether it is titled a demand loan or a call loan, it is a type of loan usually employed when the lender and borrower have a long standing and positive business relationship.

A demand loan does not work for every situation. That is obvious. However, because many companies have established strong working relationships with banks and other financial partners, a demand loan is the regular type of loan they use to fund their borrowing needs. It goes without saying that if the balance of the loan is paid back within a short period of time, the lender is more than happy to do a second demand loan arrangement with the borrower.

Money and Finance

Demand Loan Definition