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A special type of loan provision, which provides for the use of funds within the established limit. Repayment and disbursement of money takes place in stages – such operations are referred to as a tranche. As a rule, the schedule of financial flows of the credit line is set in the most convenient mode for the borrower. When the debt is fully repaid, the borrower is offered to open a credit line again, often on more favorable terms under the new contract.

Content Hide Types of credit lines Credit line agreement Credit line for business Credit line for individuals Credit line rates A non-revolving credit line is Repayment of the credit line Term of the credit line Accounting of credit lines Types of credit lines

A credit line without renewal assumes the use of funds within a certain limit. In this case, the borrower receives funds within one tranche and undertakes to repay the debt within a pre-agreed time frame. The repayment date is determined by the bank's client, but all the debt must be repaid in one payment.

Credit line with the possibility of renewal (revolving). It implies the use of a lending scheme with the periodic receipt of certain amounts of borrowed funds within the terms and limits set by the bank. Partial and full repayment is allowed. Within the framework of the revolving credit line, it is possible to borrow money in a repeated order.

Credit line agreement A contract for the opening of a credit line is a specific document in which it is customary to use concepts denoting the specifics of cooperation between the bank and the borrower within the framework of opening a credit line. First of all, we are talking about loans with a certain limit, when the amount of funds issued is limited to a specific number.

In this case, the refund does not lead to an increase in the limit, respectively, we are talking about a non-renewable credit line. There is also the concept of debt limit, which sets a limit on the total amount of debt. If the company manages to repay part of the borrowed funds, the amount of the available credit limit is restored. In this case, we are dealing with a revolving credit line.

Credit line for business A credit line is a type of long–term financing, which provides for the opening strictly for a specific project. Before applying for a credit line, it is recommended to prepare a carefully verified business plan. Ideally, if a successful project of a smaller scale is already working on the basis of the presented document. Without reasonable documentation, thanks to which the entrepreneur will be able to prove the need for income and expenses of the specified level, the provision of long-term financing of a targeted nature is impossible as such. A credit line is often opened to pay for the services of certain companies, replenish working capital, purchase goods, materials or raw materials for production, finance the purchase of vehicles, equipment or real estate.

Credit line for individuals A credit line for an individual in the modern interpretation is an ordinary plastic card with a credit limit that is renewable as the debt is repaid. Within a certain amount, funds are available at any time, and the repayment period is stretched for a sufficiently long period, which is as convenient as possible for the borrower.

Loans for housing construction or education are very popular among credit lines for individuals. As a result of receiving separate tranches, the borrower manages to thoroughly reduce the amount of the percentage part of the loan debt.

Credit line rates The interest rate is one of the key conditions under which commercial banks open credit lines to legal entities, for which the latter need to:

Choose the floating or fixed nature of the interest rate, which will be valid for the entire term of the loan. To discuss during negotiations the amount of the interest rate that will be set within each operation when working with a credit line. As a rule, the amount of the interest rate is determined on an individual basis, depending on the level of risk, the nature of the company's activities, the financial situation of the borrower, the duration of the contract, the amount and currency of the loan. The average amount of interest rates on credit lines ranges from 10 to 20%. Some commercial banks charge a commission for opening a credit line, which rarely exceeds 2% of the amount.

A non-revolving credit line is A credit line without the possibility of renewal implies the setting of a certain limit on the disbursement of funds, which are received in separate tranches within a period that is stipulated in advance, as well as within the maximum fixed amount. The borrower has the right to use the loan funds at a convenient time according to the schedule provided for by the provisions of the loan agreement. When working with a non-renewable credit line, debt repayment does not affect the increase in the available limit.

Repayment of the credit line Borrowing and repayment of funds under an open credit line occurs strictly within the established limit. Regardless of the nature of the repayment (in whole or in parts), it is required to pay for obligations within the time limits previously determined by the signed contract. The size of the open line is usually predetermined at the stage of negotiations with the borrower. The starting point for determining the limit is the balance sheet data of the borrower, in particular the volume of working capital of his enterprise, as well as the sources at the expense of which the financial flows coming to the enterprises are formed.

Term of the credit line Credit lines for small businesses are rarely opened for a period of less than three or more than twelve months. At the same time, interest rates are around 15%. Large and medium-sized businesses receive more favorable conditions in the form of a rate of 10%. Large companies can also count on more flexible loan terms and an extended repayment period, which in some cases is up to several years. But individual exceptions only confirm the rules. In each specific case, the bank's employees are required to verify the liquidity of the collateral, the high level of reliability of the enterprise and other factors that characterize the company as a reliable and stable borrower.

Accounting of credit lines Analytical accounting of the company's credit lines is conducted on specialized personal accounts. The level of detail is in the context of each trance. Transactions are corresponded on balance sheet accounts according to the principle of compliance with the actual date of placement of the received funds. The most important thing is that the terms of provision recorded in the accounting coincide with the terms specified in the contract. In some cases, the term of the actual placement of the tranche coincides with the time interval within which the loan debt to the second-order accounts of the balance sheet group is reflected. In the current situation, tranches are accounted for by the lender on the same personal account of the 2nd order of the balance sheet group.

Tips from Compare.: Do you want to open a credit line privately for personal needs? Go straight to the nearest commercial bank and demand a credit card with the largest possible limit on favorable terms. Do you own an enterprise that requires additional funds for the development or launch of a parallel project? Excellent. In your case, you will need a carefully prepared business plan to obtain a credit line. Back up these calculations with examples of successful business in real life and the bank will most likely open you a credit line with a sufficient limit.