November 26, 2019 Patricia Fuller 0Comment

This is the offer that most banks offer, which we will now look at.

Credit line – this is a fixed total amount of money that the bank grants to its customer in certain parts and at certain time periods. The peculiarities of the distribution of money are precisely regulated in the credit line agreement itself. This document also defines the term of operation, the methods of receiving funds, the forms of payment with the bank in connection with debt repayment.

The main types of credit lines

The main types of credit lines

  1. Non-renewable – characterized by a strictly defined amount of money and maturity / maturity. With this type of credit line, even the most trusted borrowers cannot expect to change the terms of the credit agreement. This type of lending is suitable for those who do not intend to replenish their revolving funds with the help of bank funds.
  2. Renewable – characterized by the ability to receive loan amounts on a regular basis, adhering to the repayment schedule of existing liabilities. Such a credit line allows companies to continuously replenish their current assets. It is usually popular with novice business people and those who often have unexpected needs when purchasing their own funds. Collaborating with a bank through revolving credit lines enables the borrower to reduce their interest payment costs.

Limited credit lines

Limited credit lines

The credit line can also have a limit: a cash out limit or a debt limit for the bank.

  1. A restricted credit line can only assist the borrower by offering the amount specified in the credit agreement . Even when a certain amount of debt is extinguished, the credit limit cannot be increased, so it is undoubtedly a non-renewable type of credit line.
  2. A credit line with a debt limit can be opened over and over again as soon as the debt reaches a certain amount. In other words, by borrowing a certain amount of money, the borrower can re-use the credit facilities. This line of credit can be thought of as a revolving category.

 

Revolver credit line

Revolver credit line

It is a separate type of credit line without limits and with a long-term activity starting from 5 years. There is no limit to such a credit agreement, but the borrower can use the loan facilities for many years, making regular payments and meeting key terms of cooperation.

The revolver credit line is described as the most attractive: the interest rate is calculated only on the use of the money and specifically on the amount of money raised. Such a line may also be in the form of insurance, in which case the natural or legal person may remove the funds in case of emergency.

An insurance line of credit is no exception when replenishing a bank limit or meeting bank requirements – the borrower must strictly abide by the terms of the contract. The bank, in turn, must grant the agreed amount of money as soon as the borrower needs it.

Open credit line

Open credit line

An open line of credit is considered to be any line of credit that has not yet reached its debt or issuance limit, or has not expired. By opening any category of credit line from the above, the borrower has the right to use the bank funds as required and to the extent specified , but he also undertakes to replenish the limit on a regular basis to create the necessary cash balance on the line account.

Credit line for legal entities

Credit line for legal entities

Any credit line is usually for corporate or individual use only. As a general rule, a bank may conclude such a credit agreement with a legal entity that has been in operation for at least 6 months or more. To gain the creditor’s credibility, the borrower must have a positive market reputation and decent solvency. In order to confirm its credibility, the client may offer securities, real estate owned by the legal entity itself, or use the help of guarantors as a guarantor to the bank.

When considering each potential borrower’s application, the bank independently determines the type of credit line it will be able to offer to this company, for what term and with what restrictions. Many lenders allow their clients to choose the method of calculating the annual rate (it can be variable or fixed).

Individual entrepreneurs consider a credit line much more attractive than a simple credit because the money comes in installments, depending on the needs of the company, thus increasing the core capital or helping to cover current expenses.

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