A credit line is a right granted to a company to use borrowed funds in a bank at a time or periodically (but only within the agreed limit and for a certain period of time).

Such a service allows entrepreneurs not to withdraw money from circulation, thus eliminating financial gaps by resorting to open credit limits. The receipt of the amount (within the limits of the credit limit) can be carried out both immediately and in full, and as necessary and in parts – depending on the type of the credit line.

Types of credit lines

Non-renewable credit line (with the issuance limit) means the provision of borrowed funds in installments (tranches) within the established time limit and the credit limit (the issuance limit). At the same time, the borrower can use credit funds at convenient times for him in the manner prescribed by the loan agreement. Repayment of a portion of the loan does not increase the issuance limit. With the business line of credit this happens to be quite important now.

A revolving credit line (with a delivery limit) means the provision of funds in installments (tranches) within the established time limit and the credit limit (the debt limit). Repayment is carried out at any time during the crediting period. In this case, the outstanding principal debt cannot exceed the established debt limit. The loan repayment part of the loan increases the debt limit.

And for enterprises whose activities are seasonal, a framework credit line is provided , which is opened to the bank’s customer to pay for deliveries at certain intervals (for example, only in the summer) within the established time limit and amount. Also, such a credit line can be opened for several payments within the same project.

There are less common types of credit lines. An on- line credit line, when the credit limit is renewed after the repayment of a part of the loan.

Advantages of credit line

  • Companies do not need to withdraw money from circulation to cover temporary cash gaps;
  • Money can be used not immediately and in full, but as necessary, in parts;
  • The Borrower has the right to withdraw any amount within the established limit;
  • Perhaps misuse of funds, the bank will not ask for confirmation of spending;
  • Saving time for raising funds: you can open a credit line in advance and use it when necessary;
  • Interest is paid only when the funds are used. And accrual of interest is not made on the whole amount of available money, but on only the amount borrowed by the borrower;

Absence of a payment schedule, the contract specifies only the allowable period of refunds, depending on the specifics and specificity of the company’s borrower.