What is a short-term loan for commercial organizations?

A short-term loan is a sum of money provided by the bank for a short period of time, issued on the terms of urgency, payment and repayment. As a rule, contracts with borrowers prescribe the period for which it is necessary to repay the loan, and the interest rate, and the terms of lending to individuals differ from the principles of work of banking institutions with the population. Currently, short-term bank loans aimed at financing enterprises are divided into one-time loans, overdrafts and loans in the form of a non-revolving or revolving credit line.

Collateral : Private companies can obtain a short-term commercial loan by pledging liquid property to a banking institution, the sale of which in case of non-payment of funds taken from a creditor, may cover the amount of debt to the bank. Firms may use residential or commercial real estate, motor vehicles and land plots, specialized machinery and equipment, funds deposited in circulation, goods in circulation.

Overdraft : An overdraft offered by bank offices is a short-term loan issued to enterprises to cover a temporary shortage of working capital used by the company in national currency, so that the company can carry out current settlements. Currently, the provision of an overdraft is carried out by paying payment documents in excess of the balances on the current account of the company, within the originally agreed amount. And the overdraft is repaid at the expense of all the funds received in the current account of the client company.

Commercial companies with a clean credit history can expect to receive an overdraft. The meaning of this type of short-term loan is that a banking institution replenishes an amount insufficient to pay the client’s account in a situation if the organization’s current accounts have less money than is necessary to make a payment. Moreover, the financial institution’s funds go directly to the recipient’s current account, the name of which is indicated in the payment documentation, and not to the account of the enterprise that is the client of this bank.

Overdraft is usually repaid automatically at the time of transfer of funds to the client account, and the terms of this type of lending are clearly stated in the agreements signed by the borrower and the lender. As a rule, the overdraft service is based on a trusting relationship between the client company and the representative of the bank, so the borrower does not need to draw up loan agreements every time the company lacks funds.

Working capital replenishment loans : Short-term credit is provided to companies for the full financing of ongoing business activities. Due to loans, the purchase of raw materials, various materials for the production of finished products, the wholesale purchase of all kinds of goods, the purpose of which is their subsequent resale, can be carried out.

Credit line : Often a short-term loan for commercial organizations is issued by opening a credit line. In this case, money is issued to the client in the form of separate tranches over a specific period of time, within the limits originally agreed upon in the contract, and no special additional negotiations are required.

A non-revolving credit line is a type of lending when, within the limits set by the banking institution, a commercial organization receives tranches for a specific amount, which is prescribed in advance in the contract. In case of opening a renewable line, the client’s enterprise receives cash tranches, and after their full repayment can receive new cash loans within the established limit and on the conditions set forth in the loan agreement.

Source: https://habr.com/ru/post/A13224/

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