Its investment policy, in turn, depends on the manner in which it manages its investment portfolio.
Thus “commercial bank investment policy emerges from a straight forward application of the theory of portfolio management to the particular circumstances of commercial bank.” Portfolio management refers to the prudent management of a bank’s assets and liabilities in order to seek some optimum combination of income or profit, liquidity, and safety.
Read this article to learn about the portfolio management of a commercial bank: objectives and theories: The main aim of a commercial bank is to seek profit like any other institution.
Its capacity to earn profit depends upon its investment policy.
Short-term asset-based loans generally get paid off as accounts receivable and inventory liquidate.
For the most part, when a banker makes a term loan, he or she is looking at the cash flow of the enterprise and trying to determine whether it is sufficient to service the debt and whether it can be sustained for the term of the loan.Asset-based lenders, on the other hand, have a dual focus.They, too, look at cash flow, but they also look at two asset classes--accounts receivable and inventory--in terms of their ability to be liquidated to pay off the loan if the cash flow goes south.If there's easily recognizable value somewhere, anywhere, in your business, you can generally get a loan against it to help fund the growth of your company.This is the fundamental idea behind so-called asset-based loans--a potent source of funding for established small businesses, according to William Barnett, an attorney with the law firm Herrick, Feinstein LLP in New York City who specializes in asset-based lending.Experience shows that many young people desiring to enter businesses have already destroyed their credit futures through bad loans and maxed-out credit cards!It will help your chances and financing to understand the language and terms of the credit industry. Operating loans are made for financing short-term, seasonal needs: seed, chemicals, fertilizer, feeder stock, etc.They are usually for a year or less, to be paid off with the income from that year's production.Security is likely to be a lien on the products produced or items purchased.Open account credit with the supplier is another source of short-term financing.Working capital loans are for longer term assets, such as machinery, breeding stock, building renovations and additions.