One of the leading financial products, and which companies use when they need it, is the credit line, also known as a credit policy. This word may sound to you, but if you are here you probably need to know what it is and what benefits it has over other solutions. Let’s see
Credit line: what is it
The meaning of a line of credit can be understood very quickly. Let’s say it’s a financial cushion for which you only pay when you use it.
The Bank puts at your disposal a certain amount of money, the “authorized limit” of the line, in a credit account, which works just like a checking account. Within that limit, you can have the money when you need it, and you only pay interest for the amount you have arranged.
As for the return, it is also free: you can return the amount that you have arranged at your own pace, without established monthly maturities, within a much broader term that can exceed even the year.
In short, the credit line is a flexible financing product for which you pay only when you use it and only for the time during which you have had the money available. At the end of the month, the only insurance charge is interest. The return date of the “principal” is decided by yourself, but the sooner you return, the less interest you will pay.
Who use it?
Normally, the credit line is popular with SMEs and freelancers, who frequently use it to pay their payments when they do not have enough cash.
It is interesting for professionals, since it gives them peace of mind at key moments for the business, since things do not always go as expected. Also, sometimes, non-payments or delays in customer payments are inevitable, so it is advisable to always have a plan
What differences exist between the credit line and a loan?
There are important differences that could help you choose one financial product or another.
For example, when you apply for a loan, you receive the money in full and you are informed that you must repay it within a certain period: the maturity. Likewise, you amortize the amount borrowed and the interest accrued month by month, no matter what.
However, in a line of credit, the bank puts at your disposal an account with money and you use it when you want, all or only part.
Another important difference is that the credit line is usually renewed when the maturity arrives, provided that the company or the individual still needs it and the Bank approves the risk again. On the contrary, traditional loans cannot be renewed.
It is one more option that we should consider. And what about the benefits?
Benefits of the credit line
To find out if this option is good for you, we inform you that the main benefits of a line of credit are:
- Flexibility: it is very reassuring to have money available for when it is needed, whether it is needed or not. A plan b at all times to manage the company’s treasury with absolute flexibility.
- Comfort: another of the strengths is comfort, since the credit account works as a current account to use and can be used to finance day-to-day payments to suppliers, pay payroll, etc.
These are the main advantages of the credit line. What is clear is that we are facing a little known financial product that could fit what you need. Therefore, it is important that you know him.