A line of credit is a liability financial institution provide before the client cash loan within the limits of a pre-agreed amount at a time convenient for the borrower and in the parts necessary for him. This compares favorably with one-time lending, in which a person can receive the entire required amount only once on a pre-agreed day.

What is a line of credit?

The credit line provides the opportunity to use bank borrowed funds as needed, while remaining within a certain limit. Depending on the solvency of its client, the bank may offer him a line of credit with a limit that will increase or decrease depending on how quickly the client borrows funds and pays off the debt.

Pros and cons of lines of credit

The advantages of opening a line of credit include:

• ease of use (borrowed funds can be withdrawn in parts as needed);
• significant time savings when raising borrowed funds;
• accrual of interest only on the amount borrowed (and not on the entire credit limit);
• lack of a clear schedule for making payments (the loan agreement specifies only repayment periods that must be observed).

Credit line for legal entities provides the opportunity to cover necessary expenses without withdrawing your own funds from circulation. Credit line for individuals It is convenient because the money can be used for any purpose.

Disadvantages of a credit line include:

• the possibility of opening it only in those financial institutions where the borrower has a deposit or current account;
• dependence of the credit limit on the borrower’s income (if income decreases, then the credit limit also decreases);
• short-term (the lending period in this case rarely exceeds 1 year).

In addition, to open a credit line with a large limit, a financial institution may require collateral.

Important: the availability of credit funds provided by the bank under a credit line is a big advantage (every time you need to take out a loan, you don’t need to spend time filling out documents and waiting for approval from the bank) and at the same time a big disadvantage (since there is a temptation to reuse credit funds, which may lead to the making of not fully thought-out purchases or transactions).

Types of credit lines

Let's take a closer look at the types of credit lines.

Framework

In this case, the bank provides the client with the opportunity to use borrowed funds for a certain period of time and within a pre-agreed amount to finance a specific project. In this case, the contract stipulates General terms lending, and for each separate operation Additional agreements are concluded within the framework of the main agreement. Framework credit lines are usually provided to companies aiming to expand their business.

Onkolnaya

On call (on demand) is called credit line, in which the lending limit is renewed every time a part of the debt is repaid exactly by its size. As previously taken loans are repaid, the limit is restored to in this case automatically (without the need to enter into additional agreements) and is determined depending on the assessment of debt obligations pledged by the borrower to the bank.

Contract account

A current account is a line of credit when opening an active-passive account, from which you can not only withdraw funds, but also replenish it. In this case, the debt to the bank is repaid automatically every time funds are received into the account.

Non-renewable (simple)

A non-revolving line of credit is a bank issuing borrowed funds to a client, limited to a certain limit, in the form of tranches. The borrower can use the funds provided to him when he needs them, and in the manner provided for in the loan agreement. At the same time, repaying part of the loan does not increase the disbursement limit. That is, each time the limit is reduced by the amount previously borrowed and is not restored even after it is returned in a timely manner and with interest. Once the client has exhausted the entire limit, he is no longer able to use this credit line.

Renewable (revolving)

A revolving line of credit is the provision of borrowed funds, the volume of which is limited to a certain limit, in parts. In this case, you can repay the loan at any time during the entire loan period. When you repay part of the loan, the disbursement limit increases. That is, if during the loan term a borrower who has already repaid part of the loan needs to borrow again an amount not exceeding the balance on the credit line account, he will be free to do so.

How to open a line of credit?

In order to open a line of credit, you need to contact the bank, financial products which you are using. The size, rate and terms of the loan for each client are determined individually and are specified in the loan agreement.

In this case, the credit history of the borrower and his financial condition, as well as business reputation. Therefore, if you have one, you shouldn’t expect that they will also open a line of credit for you. The size of the credit limit is affected by the borrower's collateral.

Very important in this case are the concepts of “debt limit” and “issuance limit”, which banks operate when opening credit lines. If you have opened a line of credit with an issuance limit, this means that the return of borrowed funds does not renew the lending limit, which is not always convenient for businessmen who need borrowed funds frequently. But a credit line with a withdrawal limit is very convenient for those who plan to make large expenses in several stages, but want to avoid all other temptations. If you are going to make just one large purchase, then opening a line of credit does not make sense: it is better simply or with any other bank.

Opening a line of credit with a debt limit means that only the amount of debt is limited. That is, if you withdrew part of the funds and then returned them, the credit limit will not decrease. A revolving credit limit is convenient for those who need to frequently use borrowed funds, but at the same time know how to control their spending.

FAQ

Let's look at common questions on the topic.

What is the difference between a loan and a line of credit?

A loan differs from a credit line in that in the case of a credit line, the client gets the opportunity to independently plan a debt repayment calendar depending on the situation, while with a one-time loan he has to do it in advance. In addition, if he opens a credit line, he can withdraw borrowed funds from the account many times and when it is convenient for him. At the same time, he pays interest on the use of borrowed funds only for those periods when he actually uses them.

What is the difference between an overdraft and a line of credit?

Overdraft is short term loan, which the bank is ready to provide to its trustworthy clients. In practice, this looks like an opportunity to withdraw from your salary plastic card a little more funds (the amount of the overdraft is determined by the bank) than it usually receives, which is very convenient when force majeure situations arise. At the same time, the client is not required to provide any evidence of his solvency, other than what the bank already has, while to open a credit line one needs to collect and submit a large package of documents.

It would be a mistake to think that an overdraft is: the interest on it is much higher than on regular loans. It’s just that people use an overdraft infrequently, and its repayment is usually faster (since an overdraft is always associated with current account, which is replenished frequently) than in the case of intentionally opening a line of credit.

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A line of credit today is quite popular among individuals and legal entities, since it makes it possible to use the borrowed funds provided to them (within the limit established in the agreement) repeatedly and when clients have such a need.

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Nowadays, the majority of the population of any country actively uses lending services, since they are not always available this moment There are enough funds to make a purchase that is needed right now. A small part of people save money until the purchase becomes possible, but the majority still turn to the services of banks. One of the financial instruments offered by banks designed to increase purchasing power and allow you to purchase the necessary services or goods right now is a line of credit, which will be discussed in this article.

Credit line

At its core, a loan of this type is one of the simplest and most beneficial options for both the client and the bank for providing funds on a debt called a loan. A line of credit represents a certain amount of money in the borrower's account. In most cases, the fee for actually having such a loan with the client is not charged or it is vanishingly small. At any time when money is needed, it is transferred to the specified account, resulting in payment for services or goods. After this, interest begins to accrue on the amount that was transferred, just like on a regular loan. A credit line agreement may provide for many options for the use of funds, their availability, purpose, types of the line itself and many other factors, so you need to carefully read it and clarify any unclear points.

Simple option

The most accessible and basic option for understanding this type of lending is a simple line of credit. Funds remain in the client's account until needed. At the right time, they are transferred to the specified person as payment. After this, the client is obliged to repay the same amount of debt along with the interest accrued up to this point. A credit line limit of this type does not imply a return to the level of funds available to the borrower up to the limit that existed at the time the agreement was concluded. That is, in order to get a large amount of money in your account again, you must first fully repay the existing debt, close the loan and open a new line.

Revolving credit line

The most common and convenient option for clients is this type of loan. The agreement stipulates a certain term of the credit line, during which the borrower will have access to funds in the specified amount. Throughout the life of the loan, he can borrow and return money in the amounts he needs, not forgetting to pay commissions and interest on time. The only condition that always exists is that the revolving credit line must be fully repaid by the time it expires. That is, there must be no debt. If this requirement is not met, the bank may refuse further cooperation, even if the amount is nevertheless returned in the required amount, since the timeliness of the return of funds, for which the financial organization already has further plans, is more important.

Frame option

A less frequent, but still used by large enterprises, lending option. As part of this loan, a legal entity receives a certain amount of funds, which is in a special account and which can only be used within the framework of a contract. Most often used for large purchases of equipment, machinery, devices for various purposes and similar categories of goods from the same supplier. It is convenient for its simplicity and speed of use, since both the purpose and both sides are known in advance. Inconvenient due to its narrow specialization. For example, for some time in a row purchases were made from one specific supplier, but later either the terms of cooperation with him became unprofitable, or a more convenient offer appeared. In this case, it is necessary either to completely close the existing line and open a new one, for a different supplier, or to use exclusively the company’s own funds, since the purpose and counterparty strictly defined in the contract do not make it possible to arbitrarily use the loan.

Oncall option

This is a variant of a revolving credit line, in which a company can take absolutely any amount from the account (within the limit) and pay with it for various services or goods. After repaying the borrowed funds, they can be borrowed again. Most often, such lines either do not have an end date, or they are long enough to not remember about this moment for years. This option is convenient for those organizations that want to protect themselves for all occasions and prefer to have a certain amount of funds in reserve, which can always be taken out if necessary. Among the disadvantages, we can note the commission, which with this option of a credit line is often slightly higher than in other cases. This is due to the fact that the bank is forced to constantly keep certain amounts in its accounts in order to guarantee the fulfillment of its own obligations, and not to use them for other purposes.

Conto-correct option

One of the most convenient options for legal entities. It is understood that there is an account from which debits are made to pay for services or goods of other persons, and various revenues and other income of the client enterprise are credited to it. From these proceeds, all interest, commissions and the loan body itself are paid, which allows the organization’s management to spend less time repaying the loan, since everything is done automatically. In most cases, banks open these types of credit lines only to those clients who have been served by them for a long time and have no complaints. Among the disadvantages of this type of loans, one can note the inability of the enterprise to take advantage of the credited proceeds or other income options, since all of them are primarily used to repay the loan, interest, commissions and similar payments, and only after that they go to the client’s account. If this option is acceptable for the enterprise, then the effectiveness of using such financial instrument difficult to overestimate.

Benefits of use

The main advantages of loans of this type include the ease with which a line of credit is opened. Most often they are offered to those clients who are being serviced in this financial organization for a long time and the bank already has all the necessary data on their activities. Thanks to this point, the potential borrower only needs formal consent to such service and a small package of documents required in accordance with the law. Also, the benefits of using a credit line include the absence of interest payments until the client begins to use the funds. In other loan options, immediately after the final signing of the agreement and the allocation of funds, interest is charged on the entire loan amount, no matter at what point the borrower begins to use them. Thus, the cost of repaying lines of credit is much lower than repaying conventional loans.

Disadvantages of use

Most shortcomings are specified in advance in the agreement for opening a credit line. Most often these are concepts such as turnover period, issue limit and other similar ones. That is, the bank immediately declares that after receiving a particular amount, the client is obliged to return it within a certain period of time, which depends on many factors, ranging from the client’s reputation to the internal regulations of the banking institution. The withdrawal limit means an amount of funds beyond which the client simply cannot take out, despite the fact that there is still money left in the account. There are many other, less common restrictions that may vary significantly from one financial institution to another.

Results

In general, this lending option is quite convenient for both parties. The bank issues a loan, albeit not immediately starting to make a profit from it, and the client gets the opportunity to take advantage of it at any time reserve amounts in case of shortage own funds or lack of desire to spend it on a given product or service. The borrower receives more freedom in operations cash flows, which significantly increases its capabilities and allows the company to grow and develop.

A line of credit is a formal agreement between a bank and its borrower. According to the document, the bank undertakes to provide its client financial loans within a certain time interval, within the established credit limit.

A bank line of credit differs from other types of lending not only in the frequency of payments. A borrower who has a reliable financial support, has the right to repay debts within a certain period and at the same time not pay interest on the use of the credit tranche.

This type of lending is actively used to strengthen your business, but is also used for individuals (for owners). A convenient payment system, comfortable conditions for repayment, and multiple opportunities to receive cash make the credit line increasingly in demand.

The conditions for opening such a line in a bank are selected strictly individually. Basic requirement: financial security and the ability to fully repay loans. The better financial position borrower, the higher the chance of getting loans at the maximum favorable conditions. The same principle applies here as with other types of accreditation: lower bank risks – lower interest rate and more attractive conditions.

Types of credit lines

A bank line of credit can be of several types:

1. renewable (revolving);
2. non-renewable (simple);
3. frame;
4. contract;
5. oncol.

Framework credit line belongs to the target group of loans. Used for one-time receipt material resources for a specific supply of products and is limited to the framework of one contract. It is the least popular precisely because of its intended purpose.

Contract line- this is a loan in which the bank opens an account for its client, from which the latter can withdraw money at the right time, and repayment occurs automatically upon replenishment. This allows companies to borrow at the right time and pay only for the specific period when the loan is actually used.

Oncol type accreditation means the possibility of restoring the credit limit by repaying debt obligation. For example, the bank approved and credited half a million rubles, but the person cashed out only part of it and was able to return it. Then it will be restored to 500 thousand again and the company will be able to use it to the required extent.

Revolving credit line (revolving)

The most popular type of accreditation used in business. Particularly relevant for those activities that depend on the seasons. The definition of a revolving credit line means the conclusion of an agreement to provide a loan with the designation of a certain financial limit debt. The agreement regulates the relationship between the client and the creditor bank, and agrees on the possibility of such actions as additional lending and early repayment.

Such a credit line can be issued for a year with further extension. The optimal solution for organizations that need financial support during certain seasons. For example, for agricultural enterprises, when the enterprise needs tranches not on an ongoing basis, but seasonally. The advantage of this form of accreditation is that there is no maximum limit on the amount received, since the limit applies only to the balance of the debt itself.

A revolving line of credit is used by banks to lend to individuals when issuing them credit cards, which are so popular today. The holder of a credit card can use the bank’s money as much as he wants within the credit limit provided to him - it is enough to replenish the cards with a certain amount (not necessarily the entire loan), and the credit limit will immediately increase by the amount of this replenishment. This can be done unlimitedly. Moreover, the cardholder has the opportunity to use the loan for free if he managed to repay the entire amount of the loan taken within.

Credit cards that provide such opportunities are called revolving or revolving.

Non-revolving line of credit (simple)

A simplified version of a revolving line, when an agreement is concluded on the possibility of opening a one-time credit line. According to the terms of receipt, including the limit on one-time debt, there are no differences from the renewable one. However, the difference is significant and is that paying off debt cannot restore your credit limit. That is, if the company used the amount, in tranches or in a lump sum, it can pay off the debt, but will not restore the right to reuse the same loan.

This form is used more often by large enterprises that do not need a periodic injection of finance to activate their business, but do need large sum for the purchase of some equipment for the enterprise.

Less common are credit cards with this form of credit line (non-revolving or non-revolving).

Credit line restrictions

There are credit lines with a total debt limit and with an issue limit.

Line of credit with a total debt limit implies a generalized amount of the entire debt, after repaying which the client has the right to continue using loans. In this case, if the borrower has returned part of the money, then the volume of lending is restored. So it's a revolving line of credit.

Credit line with issuance limit – total amount all loans that the client can receive for the entire time he uses the credit line. Here, the returned money does not increase the credit limit. Thus, this credit line is classified as non-revolving.

Credit line

Quite often, banks offer such a product as a line of credit. It stands out from conventional lending methods and has a lot of distinctive features. For some clients, a line of credit is a lifeline, but for others it can be difficult to use. Let's take a closer look at what a line of credit is, why it is needed, who uses it, how it can be used, what types there are, advantages and disadvantages of standard loans?

What is a line of credit?

It represents a commitment credit organization provide a client with a certain loan amount for a certain time. Unlike a conventional loan, the client can receive money in installments or through specified period time. The conditions for such issuance and all obligations of the parties are agreed upon at the time of concluding the loan agreement. Most often, conditions are set individually for each client. A distinctive feature of this type of loan is the permanent relationship between the borrower and the lender. In practice, banks open a line of credit regular customers with a good reputation, positive credit history and high solvency.

Who uses credit lines?

Frequent customers for this product are companies that periodically have a need for credit funds. So that every time you need a loan, you don’t have to collect a package necessary documents, the company opens a line of credit with the servicing bank. In this case, she can take a certain amount and return it. For example, a company is engaged in trade, constantly purchases materials and sells products. Funds from the sale arrive a little later than you need to pay for the material. In this case, the organization takes funds from an open line, pays suppliers, and then returns the money received from the buyer.

A private individual can also open a line of credit, for example, for studying at a university. The bottom line is this: the duration of training is 5 years, and the cost of training per year is 100,000 rubles. The client issues a credit line for 500,000 rubles, but the money is not used immediately, but in parts, for example, 50,000 rubles. every six months until the set limit is exhausted.

The most common example of a line of credit is a credit card with a limit. In this case, the client can take the amount he needs and return it at a set time. As a result, the limit is restored and you can use it again. If used correctly, such a line can work for a long time.

Types of credit lines.

Banks have several types of loan lines:

• Non-renewable. It involves the provision of a specified amount of money after a certain point in time. For example, a client wants to purchase new equipment, but has not yet decided on a supplier. To do this, he enters into an agreement to provide the required amount. While the search is ongoing, no interest is paid on the loan (after all, the client has not yet used the money). As soon as the money is transferred as payment, the loan repayment period begins. Take new loan It will not be possible to use funds already paid.
• Limit. In this case, the rules for providing a certain tranche (size and term) are specified. For example, every month the client needs the Nth amount. If he does not use it during one of the periods, he still must pay a commission. This option is convenient for entrepreneurs who need to pay for individual batches of goods, for example, throughout the year. Before established limit the client can use the tranche. Once the limit is reached, the money must be returned.
• Renewable. It allows you to receive funds as you need them and repay them partially or completely as possible. For example, a company purchases material and, as goods are manufactured, sells the product. When purchasing, the client takes part of the funds from the allocated line, and when selling, he returns the funds, reducing the amount of debt. A similar line is used in credit cards. By using the allocated limit and returning it on time, avoiding delays, the period of this lending can be eternal.
• Onkolnaya. With this line, returning part of the loan provided restores the limit to the original one. For example, a company issued an on-call line for 10 million rubles. Of the allocated amount, only 7 million rubles were needed. After some time, the money is returned, and the client can again take 10 million rubles.
• Conto-correct. In this case, a special account is opened for the client from which he can borrow funds, and when money is received, they will be written off to pay off the debt. For example, a company transfers funds from an account to a supplier, and then money from a buyer is transferred to the same account and the line is repaid automatically.

Thus, each client can choose the type of credit line that will be more comfortable for him.

Features of the credit line.

A line of credit is a fairly convenient product, however, you will have to pay for any comfort. The reverse side is shown here:

• Credit is opened at an interest rate that is higher than usual consumer loans(15-30% on average). Most high percent- By credit cards(reaches 50%). The rate can be fixed or floating (set for each transaction separately).
• For opening a line, the bank charges a commission (1-2% of the amount). The commission can also be charged for the fact that the client did not use the funds provided, as well as for various “operational services”, for example, for maintaining an account with a renewable limit.
• Technical overdraft. Theoretically, it is impossible to go beyond the established amount, however, in practice it may arise technical overdraft(over-limit), for which the bank will not miss the opportunity to charge a fine.
• If there is a suspicion of unreliability, the bank may “cut off” the credit line. For example, a mortgage line is open. While the client is looking for an apartment, the bank discovers that some certificate is missing, or the borrower has “stains” in his credit history. As a result, it may turn out that the client has already found a suitable option, and even paid a deposit, but the bank refused to provide a loan. Businessmen in this situation may even find themselves on the verge of ruin.
• On long terms liquid collateral may be required. For example, real estate accounts receivable, goods in warehouses, etc.
• A special repayment schedule and payment amounts provide for increased responsibility and discipline of the client.

Advantages and disadvantages of a credit line.

• Save time. For customers, time often plays an important role in transactions, so even higher costs do not affect the decision to open a line.
• Interest is accrued only on funds borrowed. If a client has taken out a regular loan and does not need part of the amount yet, then he must pay interest on the entire amount taken.
• Due to the line, the client can increase his working capital, cover unexpected expenses. For business, this provides an opportunity to reach new levels.

The disadvantages include the fact that if there is the slightest error in the fulfillment of obligations on the part of the client, the bank can close the credit line at the most inopportune moment. The cost of servicing such a loan may be higher due to commissions. The line can only be provided to disciplined clients with a positive credit history and reputation.

Credit line- this is a legally formalized obligation of the bank to issue a loan to a client in a certain amount within a specified time. A line of credit differs from a one-time loan in that the client can receive a loan more than once on any day specified in the agreement, but in parts when he needs it.

In banking practice, credit lines are usually divided into several types.

A simple (non-revolving) line of credit involves setting a disbursement limit, when the borrower is given the opportunity to borrow money once during a certain period. That is, in the case when the client needs it, but only at a time. Suppose a company plans to purchase the necessary equipment. She makes a deal with the bank loan agreement, they open a line of credit for her. The company is looking for the best supplier. And while she does this, no interest is paid on the loan - because the loan has not yet been taken out. As soon as a company enters into an agreement for the supply of equipment, it pays for it by receiving a loan under a line of credit - and begins to pay interest on the use of the loan. Let's assume that the deal is concluded, the equipment is delivered, and the company begins to repay the loan to the bank. The debt is reduced, but this does not increase the credit limit. That is, you cannot take the money that was paid to the bank again.

A revolving (revolving) line of credit is a lending scheme that allows the borrower to receive funds periodically as needed within a predetermined limit, repay the entire debt amount or only part of it, and re-borrow during the term of the credit line. Let's imagine trading company, which periodically purchases products from other companies. As implementation proceeds, it makes new purchases. But by selling products, she receives money for it, which comes to the bank account and reduces the amount of debt. When necessary, the company again takes out a loan to replenish its product range. Moreover, she pays only then and only for what she owes the bank at each individual moment of her activity.

A framework credit line is a loan opened by a bank under the terms of a single agreement, under which payment for several interconnected supplies is made or financing of a certain project. The agreement specifies the general terms and conditions of the loan. And for each individual operation an additional agreement is concluded within the framework of the main one.

An on-call credit line means a lending scheme in which the return of part of the debt restores the lending limit for that amount. Let's say a bank provided a company with an on-call line of credit for one million rubles. Of this amount, the company took half, five hundred thousand. Then she can take the same amount more. But suppose you didn’t need the money, but on the contrary, you managed to repay the first loan. Then the company again has the opportunity to take the entire million.

A current credit line is a loan in which the bank opens a single active-passive account for the client, from which loans are taken and automatically repaid when funds are received. Thus, the company has the opportunity to borrow money at the right time and pay only for the period when the loan is actually used.

In addition, agreements with banks often use two more concepts related to the provision of credit lines. These are, firstly, credit lines with an issuance limit, when the total amount of funds issued is limited. The return of money does not increase the lending limit, that is, in fact, such a loan is classified as non-renewable. And, secondly, the so-called line of credit with a debt limit - the total amount of debt is limited. If the company has returned part of the money, then the volume of lending is restored. Therefore, it is a revolving line of credit.

In general, the provision of a credit line is more than convenient way obtaining loans for clients, allowing them to use the loan when required and pay for it only for the period when it was taken. It is no coincidence that the banks themselves use exactly this scheme in their relations with each other: they set limits on each other. And within these limits they manage their current liquidity– borrow money and, on the contrary, place free balances.