Loan for Assets in Volatile Market - Coursework Example

Loan for Assets in Volatile Market Name Instructor Course Date Loan for Assets in Volatile Market Abstract Loans are offered by financial institutions to individuals and/or companies in order to address financial challenges especially in the development of the movable and non-movable assets. The borrower is presented with agreement terms and conditions that include the amount of loan, interest charged repayment schedule and conditions of the loan. The loans attract interests that are supposed to be paid in addition to the repayment of the rendered cash for the purchase of assets in times of low-cash flow. Businesses are in need of cash to grow and expand the assets. The borrowing may be done in terms of periodic agreement in which the company and/or individuals make periodic payments to the banks and other financial institutions. However, the company enjoys the building of assets and the creation of profitability of the business. Despite the availability of the assets financed on loans, there are risks associated with the assets bought on loans in terms of the negative implication when the monthly interest exceeds monthly rents. The assets may be used as collaterals for securing loans posing dangers to the business in times of financial crisis. This essay is based on the advantages and disadvantages in the context of risks and returns especially during financial constraints in the market. Market availability and sustainability plays a major role in shaping the financial strength of business. Risk is the potential that events, expected and/or unexpected, will have adverse impacts on the income generation and the enterprise value[Com10][She08]. The repayment of the loan even when the business fail pose a financial risk and closure of the firm though the moneylender who claim repayment posing a risk of bankruptcy. The risks are closely related to the market volatility leading to reduced interests as compared to the expenditure[Ric101]. The lender of the loan and the company enter into loan agreement in terms of payment of installment annually for a certain period. However, the company may be unable to repay the loan because of the financial constraints brought about by the low-income generation[Uni11]. One of the disadvantages that companies face when they purchase assets based on loans is the risk of losing the assets as it is used as one of the collateral for securing of loans[Lon14]. The assets are in the verge of becoming a burden to the investor in the sense that the assets are does not serve the purpose of finance generation. In addition, the company that bought assets on loan experience a risk based on the failure to fulfill the wealth maximization to the stakeholders and the principal agents[Mal08]. The firms are in the verge of losing the loan worthiness from the financial institutions because of the inability to service the loan. The volatility of the market has far-reaching effects on the profitability of the firms using assets especially secured from loans[Ros14]. The actual returns are measured in terms of the available assets and in particular, market volatility increases with the increase of negative returns. After the increase of the monthly rent rather than the monthly interest, expose the firm into scrutiny in turn amplifying the risk of trading with the firm and deteriorating reputation thus losing market share. In addition, the returns are negatively affected by the inability to pay loans and therefore the firm is unable to deploy advantage and equity of the financial capability[All10][Via10]. The cash flow in the firm is impaired by the low return indicating the high debt ratio. Furthermore, the firm cannot benefit from the appreciation of the assets in the period of the volatility in the market as the firm management has limited control over the use of the assets. In addition, there is the risk of the failure to manage the payment of the loan, as the firm purchasing assets is not always aware of the approaches to handle financial up sets whenever they arise. Venturing into assets business on loan is both risk taking profit making process that require close monitoring to ensure the best outcome are achieved[Szy13]. However, the financial performance of the firms is done in relation to the returns and risks. The risks are considered in terms of the historical loss experience, ability to absorb the future losses and firms desired level of return. Capital is a limited element that means investment of huge amounts of cash into any type of assets limits the availability of capital for other investment in firms[Lee10]. However, there are advantages of having the assets purchased on loan in the sense that the firm is entitled to the ownership of the assets and the utilization that may lead to the improvement of the financial generation channels. The assets cannot be sold by the moneylender if the firm is unable to repay the loan on time because of the volatility of the market[Neu10]. The assets are available to offer equilibrium between the returns and the risks for it are possible for the firms to stabilize financial constraints and improve cash flow through the harmonization of the firms operations. The operations are meant for saving the firm from the loan and in turn generate frequent revenues. The periodic interest rate indicates the charges on the assets given on loan over a period. It is important to mention that the periodic interest keep on compounding in turn influencing the amount of loan[Pri16]. The increase of the periodic loan interest leads to the decrease of the potential returns within the firm’s operations. This implies that the principal agents are exposed to prolonged longer time of paying loan rather than enjoying the profit of the firm. In terms of assets such as house, the borrower does not benefit financially from the purchase but if the purchasing was done through loans the lender have the rights to charge interests on the loan[She11]. The disadvantage of the loans for property assets has the right to the interest and is allowed to call in when the borrower is about to default the loan[Hou12]. In this context, the disadvantages extend especially when the investment is limited into a single asset. Property such as house is confined into a single form of investment limiting the diversification of the market exposing the asset into risk and disadvantage. Diversification allows enterprise to exploit various perspectives especially in repayment of loan during the market crisis. Conclusion In conclusion, loan is the alternative for capital provision during the financial struggles in any business. However, loan attracts interest despite the purpose of the asset purchased using the loan. The interest is in line with the provision of the terms of the loan application and payment. The market may turn out negatively affecting the performance of the investment. Investment that involves borrowing attracts a higher risk than when it involves a single asset. This essay articulates the influence of the volatility of the market to the assets bought on loans. The risks associated with the return and the investment on asset through the borrowing of loan. In addition, the loan for asset purchasing has advantage to the lender and the borrower. The steady flow of cash is hampered by the inability of the assets to trade in the strived market. The level of the amount given, conditions and the terms of the agreement influences the outcome of the loan compounding and the ability of the borrower to repay the loan. References Com10: , (Handbook, 2010, p. 34), She08: , (Sherraden & McKernan, 2008, p. 187), Ric101: , (Richardson & Choi, 2010, p. 14), Uni11: , (Universal-Publishers, 2011, pp. 19-21), Lon14: , (London, Duncan, & Camilli, 2014, p. 421), Mal08: , (Malone & Gray, 2008, p. 147), Ros14: , (Rossi, 2014, p. 313), All10: , (Allen & Saunders, 2010, p. 49), Via10: , (Viallet & Hawawini, 2010, pp. 293-296), Szy13: , (Szylar, 2013, p. 45), Lee10: , (Lee & Lee.C, 2010, p. 324), Neu10: , (Neu & Matz, 2010, p. 981), Pri16: , (Pritchard, 2016, pp. 3-6), She11: , (Sheehan, 2011, p. 410), Hou12: , (Houston & Brigham, 2012, p. 565), Read More