Credit Lines
Credit line is a legally formalized obligation of a company to provide a client with credit in a specified amount over an agreed period of time.
Types of Credit Lines
1. Non-Revolving Credit Line
- Description: Funds are disbursed in installments as needed.
- Features:
- There is a limit on outstanding debt at any given time.
- Once funds are used, the limit is not restored.
2. Revolving Credit Line
- Description: Provides for the restoration of the company's debt limit upon repayment of a previously issued loan.
- Features:
- The limit automatically increases after each repayment.
- Allows flexible cash management.
Advantages of Credit Lines
- Ability to regulate cash flow according to client needs.
- Ability to increase the limit in case of acute cash shortage (if necessary).
- Flexibility of use of funds within the established limit.
How Does It Work?
Credit Line Setup:
- Determining the type of credit line (revolving or non-revolving).
- Setting the debt limit.
- Configuring disbursement and repayment terms.
Using the Credit Line:
- The client can receive funds in installments within the established limit.
- For a revolving credit line, the limit is restored after repayment.
Limit Management:
- If necessary, the limit can be increased if the client is experiencing an acute cash shortage.