The standard interpretation of the term "loan" is perceived as a single issue of a certain amount of cash to the borrower, then return them with interest, which extend payment for the use of the resources provided.Recently, however, the banking practice widespread form of borrowing such as credit line.It involves the conclusion of an agreement between the credit institutions and enterprises on the basis of which the client did not take the full amount of the whole, and the individual parts or tranches.
Thus, the head of the line of credit gives the company the opportunity to periodically fill a temporary shortage of finance for the implementation of core activities.This eliminates the need for each time to sign a new agreement for a regular loan.Commercial banks are a form of lending is also useful, because allows you to expand the customer base, significantly increasing profits.On the basis of bilateral agreements sets the bank credit limit.This maximum amount of funds that can be issued to a particular borrower in total.Often subjected to limitation and the size of the tranche.
It is worth noting that the credit line is available not only to businesses but also to individuals.For example, almost any citizen can file a proper application for a loan in such a way to repair their own homes, especially if payments to contractors are made in non-cash form.Commercial banks are open daily credit lines to individual citizens or legal entities in the form of registration and issuance of plastic cards.
a deeper analysis of the banking product, there are three main types:
- non-revolving line;
- renewable;
- mixed.
The first type involves the establishment of a strict limit of funds that can be issued to the client.As a rule, the bank alone sets the limit value for each borrower, based on the assessment of the financial condition of the company and the client's solvency.If the client used the sum available to it and in need of further assistance, in order to obtain another loan he will have to apply for and be a new agreement.The resumption of this line of credit is not permitted, even with the full repayment of all tranches.
In this regard, we can conclude that for businesses profitable revolving credit line.In this case, the limit is determined by the total, but can use any number of trenches within a total loan amount.If the borrower will need additional credit, it is obliged to pay the previous amount of principal and interest for the use of funds.Only then he can apply for resumption of the line.
Mixed form means that subject to limitation and the total amount of the loan and the amount of each tranche.The customer can use any number of tranches for a period of time, but only within the specified values.
