Thursday, December 10, 2020

Line of credit is … types and characteristics of lines of credit

Long-term investments are required to maintain the organization’s competitiveness. Additional funds can be raised through overdrafts, target credits or credit lines. In this article, you will learn more about the essentials and the conditions for the provision of this service.

The credit line is provided by the organization, the right to use the bank’s loans in a specified period and at the prescribed amount. Special conditions are laid down in the contract. With this service, you can close financial gaps without withdrawing capital. The customer can decide when and how much money should be used.

Types of Line Credit


A non-renewable credit line is provided in tranches within a certain period and with a limited budget. The borrower decides when the money will be used. The repayment of the debt does not increase the limit.

The revolving credit line is a loan that is made available in part within the contractually stipulated period. The timely repayment of debts increases the limit of available funds. The customer only pays the amount of capital actually used.

In the first case, the borrower returns the body to the bank loans and interest, after which the line is closed. And in the second – after repayment of the first tranche, the limit of available funds increases and you can use borrowed money again. There is only one limitation – the debt must be repaid within a certain period. Usually, it is for 3 months.

A non-renewable credit line with an emission limit applies when a customer needs debt for a certain period of time. However, the exact date of the start of expenditure is not known.

The credit line is opened to pay for deliveries that are made at regular intervals within a specified period.

There is a separate program in which a new tranche can only be received several times within the specified period after full payment of the previous one. It’s called a revolutionary line of credit.

There are some more specific types:

  • Oncology (returning part of the money gives you a future loan for that amount);
  • Conclusion of contract (credit is issued automatically after the previous one has been repaid);
  • Multiple currencies (short-term financing of foreign trade activities);
  • on request (loan on request) and others.



  • The loan company is a non-renewable credit line in the bank in the amount of 1 million USD. Three tranches were taken: 500, 200 and 300 thousand USD. After receiving the last part of the limit has been reached. Now the customer has to repay the loan in full. He can no longer use the money even if the debt is partially paid.
  • The organization’s credit limit is 1 million USD. The borrower took the tranche – 700 thousand USD. After this operation, the limit dropped to 300 thousand USD. The following month, part of the debt was repaid – 500 thousand USD. Now the amount of funds available is 500 + 300 = 800 thousand USD. This means that the customer can withdraw money several times and pay it back in time. This means that the amount does not exceed the amount for which the credit line was provided. This is a renewable loan.

Sometimes the bank charges a fee for unused parts of the funds. In the example above, this number is 300,000 USD. In the case of a renewable system, the deadline for the return of each tranche is also set. The contract can be concluded for one year. However, each individual part of the funds used must be repaid within 2-3 months.

  • The revolver program set a limit of 1 million USD. for 1 year. The customer can borrow funds within this amount an unlimited number of times within 12 months.

Difference between a credit line and a target loan


  • Comfort and benefit for the company. The date of the need for money is not known in advance. A line of credit with a withdrawal limit allows you to get a loan on time and repay it when the opportunity arises.
  • Funding takes less time.
  • Although this service is available in banks for almost all customers, the limits and terms of use depend on the size of the company.
    A deposit is required in some cases. These can be raw materials that the company acquires with borrowed funds or other assets. If there is collateral, the interest rate is reduced and the process of processing the transaction is accelerated.
  • You can get a targeted loan from Good Finance. Terms of use are less advantageous for the borrower. Lines of credit usually have a lower interest rate.

Features of the provision of services by Russian banks


A loan can be obtained in USD, dollars or euros. The amount depends on the legal person’s solvency, their creditworthiness and the account turnover. The data vary between 3 months and 5 years. If a “long” line of credit is opened with a debt limit of more than 1000,000 USD, the bank can demand adequate security: real estate, land, means of transport, equipment. The company can get a loan:

  • at a fixed variable interest rate;
  • % Commission is calculated separately for each tranche.

The bank remuneration is always determined individually, depending on the amount, currency, conditions, financial position of the borrower, the reputation of the organization and the level of risk.

The commission is between 10 and 20% per year. Opening a credit line costs the borrower 2% of the limit amount. A renewable system can include a monthly maintenance fee. Restrictions on the amount of a tranche can also be set.

Legal advantages

  1. Save time: You don’t have to complete every transaction individually.
  2. Interest is only accrued for the funds used.
  3. Repayment is automatic when money is transferred from counterparties to the borrower’s account.
  4. The interest rate for using the service is lower than for targeted loans.
  5. With the help of a loan, a customer can increase working capital, cover unforeseen expenses or let money flow directly into business development.

Credit to Good Finance: conditions for obtaining a service

Credit to Good Finance: conditions for obtaining a service

Largest financial institution in Srana offers a loan of up to 3 million USD. at a rate of 19-19.5% without collateral or guarantee. A company can use these funds to replenish current assets or start a business. At the same time, the bank has the right to unilaterally freeze tranches in the event of initial financial difficulties.

The limit of funds for which Good Finance’s credit line depends on the specifics of the business, a particular project, the financial stability of the company, the security and reputation of the company. If the loan amount is high, you will need to arrange a pledge. It can be buildings, equipment, vehicles, stocks, securities.

The amount of the loan is 50-70%, depending on the value of the collateral. The application will be considered for about a week. During this time, external and internal factors as well as the liquidity of the collateral are assessed. If the bank makes a positive decision, you can immediately sign a line of credit contract. No additional time is spent on revaluing assets.

Some statistics

The need for companies in the “long” loans reaches 900 billion USD. a year, but companies do not receive more than 10% of this amount. The payback period for investments is 7-10 years. Good Finance actively finances small businesses. About half of the organization’s loan portfolio consists of long-term investments worth more than 600 billion USD, provided by more than 1 million companies.

A “Business” line of credit was developed for small companies, in the context of which it is possible to procure external funds for any purpose: from purchasing materials and fixed assets to financing loans from other institutions.


It becomes unprofitable for banks to deliver lines of credit to legal entities. This is evidenced by legal practice with bankrupt clients. Such claims are treated like normal loans.

The amount that the customer has to repay is not calculated from the credit limit, but from the gross amount of the payments made. Bankers do not see this product as unique, but as renewable. As a result, bank spending increases significantly.

Option for individuals


However, Russians can also get a line of credit.This service is not offered by all banks and only on bail. An open deposit is used as the latter. The aim is to finance a loan from another bank or to obtain working capital for the foundation of a company. Nevertheless, this service has advantages:

  • the ability to use borrowed funds without breaking deposit and interest;
  • You can arrange the service for an emergency using a person’s deposit as security.
  • A loan is granted in the form of opening an account with a bank.
  • Minimum package of documents;
  • There is no cost to register collateral.
  • The interest rate generally corresponds to the interest rate provided for the deposit, taking into account a small margin.
  • no monthly commissions;
  • A credit line can be opened in dollars, euros or USD.
  • The maximum term is six months.

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