Types Of Credit Facility

What is an omnibus credit facility?

An omnibus credit facility is a special multipurpose credit facility that is offered to business owners. This allows borrowers to draw a certain amount of money, provided that it is within the approved credit limit. An omnibus facility is incredibly flexible which allows business owners to manage their funding requirements easily and effectively. Moreover, the interest on omnibus credit facilities is based on the market rate.

Omnibus credit facilities are available for multiple drawdowns or for a one-time draw. However, to avail an omnibus credit facility, business owners must be able to provide real estate as collateral. The amount of credit that is offered depends on the value of the collateral, actual need of money, creditworthiness of the borrower and the repayment capacity of the project.

What is an undrawn credit facility?

An undrawn credit facility refers to the amount of balance in a line of credit that has been granted to a borrower. While the line of credit specifies the maximum amount of money that a borrower can choose to withdraw, undrawn credit specifies the balance amount remaining that can be withdrawn by the borrower. Also, a borrower can avail the full balance amount in the line of credit by making repayments on time. With every repayment made, the balance in the line of credit is renewed. Moreover, borrowers need to pay interest only on the amount of money they withdraw and not on the undrawn credit.

What is a supplier’s credit facility?

Supplier’s credit facility is a special type of credit facility which a borrower can avail of from a lender in the seller’s country. Such a credit facility is usually made available under a letter of credit issued by banks in the borrower’s country on behalf of overseas banks. It allows buyers to purchase from suppliers on sight, against the issuance of a valid letter of credit. Buyers can ease short term credit and import materials at a cheaper price thanks to supplier’s credit facility. On the other hand, the seller can avoid the risk associated with the credit of the importer by making a settlement with the letter of credit. It is a very useful financial instrument that allows buyers and suppliers located in different countries to carry out business easily and effectively.

What is an unsecured credit facility?

An unsecured credit facility is a type of credited facility where borrowers do not need to provide any collateral to avail credit. While this makes availing a credit facility much simpler for borrowers, there are certain prerequisites to it. Borrowers must have an excellent credit rating, solid company financials and they must be able to provide some guarantees to the bank. Guarantees can be made by the business owners or by some other corporation. Availing an unsecured credit facility can be much more difficult than secured credit facilities, especially for small businesses that are just starting out. However, the fact that no collateral is involved makes it very popular with many business owners.

What is a home credit facility?

A home credit facility is a unique type of loan wherein borrowers can combine the benefits of a regular loan with the features of a current account. In such a facility, a home credit account is created and linked to a loan account. Any amount of money deposited in the home credit account is transferred to the loan account. This enables borrowers to pay lower interest on the loan amount. Moreover, the money is always available to the borrower in the form of an overdraft line. Home credit facilities are quite popular with self-employed individuals and small businesses as it offers ready availability of funds at lower interest rates.

What is a standby credit facility?

A standby credit facility refers to a sum of money that can be borrowed in part or full as part of a credit facility. This sum of money must not exceed a predetermined amount and borrowers can access this money as and when needed. Standby credit facilities are very popular with businesses as it allows them to guarantee their ability to pay clients. In such a case, a standby credit facility works exactly in the same manner as a performance bond. It can also be used as a backup source for funds in case the primary funding source fails.

What is an extended credit facility?

Extended credit facility refers to a special type of credit facility that offers assistance to companies with payment problems or protracted balances. It is a flexible credit facility which is tailored to meet the needs of struggling small businesses. The funds from this credit facility can be used by a company to grow in a stable and sustainable manner. Extended credit facility usually lasts for a duration of 3-4 years. After this facility expires or is cancelled or terminated, it can be renewed once again.

What is a revolving credit facility?

Revolving credit facility is a special type of credit facility which is not associated with a fixed number of payments. Rather, the borrower pays a commitment fee and can withdraw funds as and when required up to a specified limit. In addition to the commitment fee, borrowers also need to bear certain interest expenses. In essence, a revolving credit facility implies that a business is pre-approved to avail a credit facility or a loan. Borrowers can simply withdraw money from their line of credit once it has been sanctioned, without need to reapply for a loan or go through a credit reevaluation process.”