La credit policy it is a benefit that all people can obtain as help in times of need, it requires knowing its operation, forms of use, importance and other points that will be detailed in the following article.
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What is the credit policy?
In relation to what what is a credit policy It is the financial movement tool in which a banking entity grants a company the benefit of acquiring a debt, with a limit on the cost and a period of time for its cancellation. When it is indicated what a credit policy is, reference is not being made to a loan, because they are different financial activities.
When talking about a credit policy, it is to mention having quick money where an agreement is reached to use it and if you want to repay it, it can be done between the movements of the accounts and agreeing payment terms of a year or so; while a loan has different conditions for a specific expense of a greater nature, having stipulated times of up to 20 years.
The credit or also called credit formality is a financial exercise in which the client (creditor) acquires a loan for a stipulated amount of money to another person (debtor) or bank among other lenders; the creditor is obliged to return the amount of cash requested and the cancellation of interest generated, insurance and other costs that are established in the middle of the negotiation are included.
The banking entity, after having made the calculations of the account, allows the availability of an amount of cash, where it can be used exclusively up to that limit; From that moment, both the interest of that limit amount and the balance of the allowed amount will be cancelled. These procedures are linked through the current account, also called credit account.
This financial instrument is appropriate to be able to cover all types of obligation or need for money both in the short and medium term; interest payments can be made on a quarterly basis, using the stipulated percentage on the average debtor amount of the established period; on this occasion what corresponds to the credit amount where different commissions may result from the non-estimated interest.
It is necessary to monitor this type of credit so that there are no excesses in practice, but when these excesses are guaranteed by the entity, the interest on the credit tends to be much higher.
Banking entities offer different instruments to solve economic situations of institutions or individuals.
If you want to know more about the economic commitments granted by banks, we recommend you read our article on the Bank credits.
Elements of a policy
In a credit policy there are three important elements that must be taken into account; Favorable capital or term, is the maximum value that can be obtained in an application with the difference in the period in which it varies according to the repayment term, the interest rate and the total content of the debt.
As a second element, expiration, the period you have to guide and restore the money; This type of credit does not exceed one year, however, if the company demonstrates good conditions, a longer period can be marketed so that the credit policy remains in force, therefore the modality is maintained annually.
Commissions and interest prototypes, all financial instruments have a commission and generate interest related to each other, the policy has an associated expenditure chain in the form of amounts.
- startup commission; It refers to the amount of money that they withhold to initiate or open the account for the credit.
- Availability Commission; having the benefit of manipulating the amount of money, the collection is made on the percentage that is normally low for the amount that is going to be used.
- Interest on capital drawn down; the utilities that are going to be canceled by the capital that has been used.
- Interest exceeded; those profits that are generated at the time that the total amount agreed is exceeded, it is a very high commission, you must be very careful about it.
How do they work?
Before any request for a credit policy, it is necessary for the client to have knowledge of the recommendations for the use of said financial instrument, their disadvantages and others; Within these recommendations and in use we find:
- Do not forget that they can have initiation and study commissions as a couple.
- The credit policies have a joint current account, however, their use is viable when linked to that account because it depends on the benefits offered by the financial entity, giving a possibility of well-being to the associations that manage them.
- The use of this financial instrument is short-term, with terms that can range between six months and two years; Depending on the procedures, they can be modified with practice in long-term procedures with terms extended instantly.
- The cancellation of these interests is on a quarterly basis, using the stipulated interest on the average delinquent balance of the stipulated cycle, in this case what is provided on the credit amount and at the same time the commissions for undrawn interest.
- Supervise closely so that there are no excesses in the ability, since if they are trained they would receive higher commissions and interest characteristics.
Use of the policy
During the phase of banking relaxation and difficulty, the credit policy has been the financing material par excellence, inciting a debt that is not necessary for companies. Now companies have been forced to change this business loan standard to a more reasonable and beneficial long-term one; precise treasury obligations.
It is not recommended to use the policy to supply fixed assets, provide with the purchase of computer systems, vehicles, and others; provide administration needs, for example at the time of requesting the policy to subsidize cash flow inflows, after paying salaries and supplier expenses; finance when customers do not pay in the established time.
credit policies for companies
The credit policy is intended for medium and high financial valuation companies that manage to demonstrate their solvency, possess suitable supplementary guarantees; Being direct fluency, it is rigorous with the study of the risk of the company and its section. In relation to coverage, any association with working capital loan needs can choose a credit policy to pay for it.
This financial instrument can be arranged through a public official or through a private agreement, however it is advisable to present it in front of a notary; Likewise, in the contract it can be carried out in an open term manner, in this way it is not required to be assisting the official employee for each renewal of the year, or referring to the closed term, so that when the line of credit expires it will be canceled therefore it is required opening a new line.
In order to calculate the real and total cost of the credit policy, all the elements that participate and intervene directly and indirectly must be taken into account, plus the expenses they generate in terms of whether the document is required to be notarized, interest rate, in case of renewal, among other variables that may arise depending on the case.
All companies carry out a process of evaluating their economic plans and financial reality in order to take action in the event of any problem. We recommend that you read about the financial plan of a company.
Importance
This financial instrument allows you to attend any specific eventuality at a lower cost compared to personal loans; In the same way, they do not carry debt because they do not have a maximum collection limit that could generate pressure over time.
The banking entity evaluates the economic performance of the company to be able to calculate the commission that corresponds to cancel to compare with the guarantee presented to be returned or not. The other alternative is the credit that does not generate interest, since only the available capital and the minimum interest for the month or quarter, which corresponds to 0,02%, are paid.
The function of this type of policy is the same as that of a checking account, allowing the entry and exit of money when convenient. The disadvantage of this prototype of financial benefit is the high interest it generates in the event that the product is misused; many request it for enjoyment but it doesn't take long before they want to deliver them.
