A loan is a loan of money (or goods) with interest. Its main principles are urgency, repayment and retribution. The emergence of this economic category is associated with the sphere of exchange and circulation of capital.
Functions of credit exist of a general and selective nature.
Redistribution function . Market conditions require a constant movement of capital. The loan capital redistributes the free financial resources between the spheres of economic activity, moving them from one industry to another, which provide higher profits. Thus, it acts as a spontaneous macroregulator of the entire economy, providing dynamically developing branches of the economy with additional resources. In order to prevent loan capital from creating imbalances in the market structure, these loan functions are regulated by the state. The state evaluates economic priorities from the standpoint of national interests, and not just the benefits of individual economic entities.
Accelerating the concentration of capital . The concentration of capital is necessary for the stability of the economy. Borrowed funds allow to expand the scale of production and provide additional profit. However, at the stage of economic recession, such resources are irrational due to their high cost.
Cost savings . The source of loan capital are resources temporarily falling out of industrial and commercial capital turnover. Such a gap between the receipt of funds and their spending by business entities can lead to both an excess and a lack of financial resources. Therefore, loan capital makes up for a temporary shortage of working capital and accelerates the turnover of capital, and, as a result, helps to save overall costs in the field of circulation.
Acceleration of scientific and technological progress . The most vivid illustration of this function is expressed in financing the scientific and technical activities of organizations for which the gap between capital investments and the sale of manufactured products is especially characteristic.
Turnover service . In this function of the loan, it affects both commodity and cash circulation. In fact, it displaces cash from circulation, withdrawing such instruments as credit cards, checks, bills. Replacing cash with settlements on a non-cash basis, it simplifies and accelerates economic relations in the market. In this loan function, the most significant role is played by commercial loan capital.
The forms and functions of the loan are interconnected with the essence. If the functions of credit express the deepest meaning of regulating the economy using its mechanism, then the forms imply a specific external manifestation of credit relations.
Depending on who is the borrower and the lender, there are such forms as bank, commercial, mortgage, consumer, state, inter-farm, inter-bank and international credit.
The form determines the composition of participants, loan facilities, interest, dynamics and scope of the functioning of loan capital.
Banking is provided by any financial institution or bank to individuals, legal entities, the state and foreign customers in the form of a cash loan.
Commercial - sale by one enterprise to another of goods with deferred payment.
Mortgage - a loan secured by real estate, issued for the construction or purchase of housing, the purchase of land.
Consumer is usually provided by trading companies and financial institutions to the population for the purchase of goods and services by installments.
Interbanking occurs when commercial banks provide loans to each other or take them from a state bank.
Government is divided into public 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 public debt. Therefore, the functions of government credit may vary.
Inter - farm - the provision of loans by various business entities.
International - the movement of loan funds in the field of international economic relations for the provision of commodity and currency resources.