What is a demand loan?
The demand loans are loan agreements that give the lender the ability to demand full payment of the balance on the loan at any time after the loan is executed.
Unlike a installment loan, the demand loan format does not contain a specific maturity and may not include a specific schedule for payments to the pension debt. Sometimes referred to as a call loan, a demand loan is usually employed when the lender and borrower have a long standing and positive business relationship, and that the lender trusts that the borrower will pay off the loan within a reasonable time.
A loan on demand is often an advantage to the borrower, as the repayment schedule is very open. This can be especially important if the purpose of the loan was to finance a new venture that could take some time to become profitable. The borrower can make symbolic payments from time to time as the project begins to gain momentum, gradually increasing the volume and frequency of the payments that the generated revenue increases.
For the lender, a loan on demand situation can also be quite lucrative. As with most types of loans, a loan on demand structure includes the use on a regular basis. For the duration of the loan, the lender continues to earn interest on the outstanding balance.
Because a demand for loans can be called for discretionary lender, it is also possible to take measures that will minimize potential losses. If the lender determines that the borrower is engaged in activities that are short of time due to a downturn due to financial or other changes, it may be possible to call the loan and get the balance before the downward spiral begins. Similarly, if the lender hears that the borrower has begun to default on other financial obligations, the lender may choose to call the loan before the borrower can seek bankruptcy protection from the remaining creditors.
While a loan to be repaid on demand does not work for any situation, many companies have established strong cooperative relationships with banks and other financial partners and make use of an on-demand loan on a regular basis. Generally, if the remainder of the loan is repaid within a relatively short period, the lender is more than happy to embark on another loan on demand agreement with the borrower.