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Large loan explanation for the wide area coverage

What is a large loan?

What is a large loan?

A large loan in banking is a loan that exceeds 10 percent of the equity of the lending institution. It does not have to be a single loan, but all loans to a single borrower are summed up. The level of these loans increases the risk for banks. If the borrower gets into payment difficulties and can no longer service the loan, the existence of the bank is at risk. For this reason, large loans are subject to an increased reporting requirement. According to the German Banking Act, the bank must report any loans of this amount to the Best Bank. All of these loans to a single customer must not exceed 25 percent of the bank’s total equity. Exceptions are only possible after strict examination by bank financing. In addition, the sum of all large loans must not exceed eight times the bank’s equity.

Who is using it?

Who is using it?

Large loans do not occur in the normal day-to-day business of a universal bank. These loans are used almost exclusively by medium-sized and large companies that need millions or even billions of dollars for investments. This can be, for example, an investment in property, plant and equipment, the purchase of real estate or the purchase of raw materials that are required for production. In many cases, an intangible investment in research and development also proves to be very expensive, even for large corporations. The development costs for a new model of a car manufacturer fall into this category.

What else is there to know?

What else is there to know?

Even though settlement and repayment usually go smoothly, according to a study by the Best Bank, large loans that have burst are responsible for the majority of bankruptcies. The German banking crisis, with the bankruptcy of several banks in the wake of the global economic crisis from October 1929, was fueled by bad debts with large amounts of credit. A recent example is the severe crisis at Nice bank in the 1980s. The bank had previously granted loans in the hundreds of millions to a construction group that had stumbled.

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