Term Loans for Working Capital
Under this arrangement, banks advance loans for 3-7 years repayable in yearly or half yearly installments.
Letter of Credit
While the other forms of bank credit are direct forms of financing in which banks provide funds as well as bear risk, letter of credit direct form of working capital financing and banks assume only the risk, the credit being provided by the supplier himself.
The purchaser of goods on credit obtains a bank. The bank undertakes the responsibility to make payment to the supplier in case the buyer fails to meet his obligations. Thus, the modus operandi of letter of cred is that the supplier sells goods on credit extends credit (finance) to the purchaser, the bank gives a guarantee and bears risk only in case of default by the purchaser.