The Functions of the Loan and the Form of Existence of Loan Capital

A loan is the provision of money (or goods) in debt with interest. Its main principles are urgency, recompense and reward. The emergence of this economic category is associated with the sphere of exchange and circulation of capital.

The functions of credit are of a general and selective nature.

Redistributive function . Market conditions require a constant flow of capital. Loan capital redistributes free financial resources between spheres of economic activity, moving them from one sector to another, which provides a higher profit. Thus, it acts as a spontaneous macro-regulator of the entire economy, providing additional resources to dynamically developing sectors of the economy. In order that loan capital can not contribute to the formation of a disproportion in the structure of the market, these functions of credit are regulated by the state. The state assesses economic priorities from the standpoint of national interests, and not only the benefits of individual economic entities.

Acceleration of concentration of capital . Concentration of capital is necessary for the stability of economic development. Borrowed funds allow to expand the scale of production and provide additional profit. However, at the stage of economic recession, such resources are irrational because of their high cost.

Saving of distribution costs . The source of loan capital is resources that temporarily fall from the industrial and commercial turnover of capital. This gap between the flow of funds and their use by business entities can lead to both an excess and a lack of financial resources. Therefore, loan capital replenishes the temporary shortage of its own working capital and accelerates the turnover of capital, and, as a result, contributes to the saving of total costs in the sphere of circulation.

Acceleration of scientific and technological progress . The most graphic illustration of this function is expressed in the financing of scientific and technical activities of organizations, for which the gap between capital investments and the sale of manufactured products is particularly characteristic.

Maintenance of goods turnover . In this function of credit, it affects both commodity and money turnover. As a matter of fact, it expels cash from circulation, displaying such instruments as credit cards, checks, bills. Replacing cash with non-cash settlements, it simplifies and accelerates economic relations in the market. In this function of credit the most significant role is played by commercial loan capital.

The forms and functions of credit are related to each other. If the functions of credit express the deep meaning of regulation of the economy through its mechanism, then the forms imply a specific external manifestation of credit relations.

Depending on who acts as a borrower and a creditor, they distinguish such forms as bank, commercial, mortgage, consumer, state, inter-farm, inter-bank and international credit.

The form determines the composition of participants, the objects of loans, the amount of interest, the dynamics and scope of functioning of loan capital.

Banking is provided by any financial institution or bank to individuals, legal entities, the state and foreign clients in the form of a monetary loan.

Commercial - the sale by one enterprise of another goods with a deferred payment.

Mortgage - a loan secured by real estate, issued for the construction or purchase of housing, land purchase.

Consumer is usually provided by trading companies and credit and financial institutions to the public for the purchase of goods and services with installment payments.

Interbanking arises when commercial banks provide loans to each other or take them from a state bank.

The state is divided into state credit as such and public debt. In the first case, state credit institutions lend to individual sectors of the economy. In the latter, the state borrows funds from credit and financial institutions to finance the budget deficit and pay the national debt. Therefore, the functions of public credit may differ.

Inter - farm - the provision of borrowing funds by various business entities.

International - the movement of loan funds in the sphere of international economic relations for the provision of commodity and foreign exchange resources.