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iv. As repayment of loan can be made in easy installments, it does not
prove to be much of a burden on the business;
v. The funds are made available even during periods of depression,
when other sources of finance are not available.

Limitations

1. Financial institutions follow rigid criteria for grant of loans. Too many
formalities make the procedure time consuming and expansion.
2. Certain restrictions such as restriction on dividend payment are
imposed on the powers of the borrowing company by the financial
institutions;
3. Financial institutions may have their nominees on the Board of
Directors of the borrowing company thereby restricting the powers of the
company.

Commercial Banks

1. Commercial banks occupy a vital position as they provide funds for
different purposes as well as for different time periods.
2. Banks extend loans to firms of all sizes and in many ways, like, cash
credits, overdrafts, term loans, purchase/discounting of bills, and issue
of letter of credit. The rate of interest charged by banks depends on
various factors such as the characteristics of the firm and the level of
interest rates in the economy.
3. The loan is repaid either in lump sum or in installments.
4. Bank credit is not a permanent source of funds. Though banks have
started extending loans for longer periods, generally such loans are used
for medium to short periods.
5. The borrower is required to provide some security or create a charge on
the assets of the firm before a loan is sanctioned by a commercial bank.

Merits

i. Banks provide timely assistance to business by providing funds as
and when needed by it.
ii. Secrecy of business can be maintained as the information supplied
to the bank by the borrowers is kept confidential;
iii. Formalities such as issue of prospectus and underwriting are not
required for raising loans from a bank. This, therefore, is an easier
source of funds;
iv. Loan from a bank is a flexible source of finance as the loan amount
can be increased according to business needs and can be repaid in
advance when funds are not needed.