Question

The loans that were most profitable tended to
have the shortest/ longest terms and the
lowest/highest monthly payments.
Circle the correct term

Answer 1

Question:

The loans that were most profitable tended to  have the

A) Shortest terms, lowest monthly payments

B) Shortest terms, highest monthly payments

C) Longest terms, lowest monthly payments

D) Longest terms, highest monthly payments

Answer:

The correct option is C) Longest terms, lowest monthly payments

Explanation:

We don't know the nature of the loan and the conditions of disbursement so I'll make certain assumptions here.

As with all debts, every credit given must be paid back.

If the nature of the credit is that it has a short term and high monthly payback, it may put the business under undue pressure, thus defeating the real purpose behind the reason for the credit. Many businesses borrow money to solve a problem. It may be expansion problems, or business recovery problems. In either case, the business always requires ample time to regain traction.

So to request for the payback in less time than it takes for the business to generate traction in terms of customers, market awareness, and real business activity is counter-productive. Many times this is the case, as investors want to recoup their capital as quickly as possible.

So, from the standpoint of the loan recipient, when loan facilities, however, are spread over a longer period with low monthly paybacks, it gives the business room for more operational flexibility as far as finances are concerned. The business is able to weather "teething" periods and payback the funds. Long terms allow the business more time to trade the funds thus generating more profit.

Cheers

Answer 2

As there is no known form of the loan or the terms of disbursement, there will be made assumptions here to answer the queston. Every credit issued must be repaid, just like any other loan.

• The Longest term, lowest monthly payments are the correct answer:

• If the credit has a short-term and a large monthly payback, it may put the business under unnecessary stress, negating the factful objective of the credit.
• So requesting payment sooner than the time it takes for the business to gain market awareness, momentum in terms of clients, and actual commercial activity is counterproductive.
• This is often the case since investors want to get their money back as soon as possible.

As a result, from the perspective of the loan recipient, when loan facilities are stretched over a longer length of time with modest monthly paybacks, it allows the business to have greater operational flexibility in terms of finances.

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