While giving loans and the cash advance to the different customers, it is necessary for the banks and the financial institutions to follow the cardinal principles of lending. The cardinal principles of lending are safety and liquidity of the loans given to the customers, the profitability and the diversification of the risks with respect to the loans given to the customers. The loans given to the customers should be used only for productive purposes by the customers., the banks and the financial institutions should ensure that they have adequate security while sanctioning of loans to the customers. Loans are given by the banks and financial institutions for a short period as well as for a longer tenure for the benefit of the customers. The short term loans are usually repayable within a period of one year. The short term loans are granted by the banks and the financial institutions for the day to day functioning of the corporate and the firms. The long term loans are granted by the banks and the financial institutions for the acquisition of fixed assets that is land, fixed assets like factory, office building, fixed assets like warehouses machinery and other miscellaneous plant and machinery, furniture and fixtures.
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