What is a credit policy and how can it help your business?
We tell you everything you need to know about this source of financing
Credit policies are a financial instrument widely used by SMEs and self-employed workers in Spain to finance their operations . However, we must be clear about how they work, since they are quite different from a normal loan and, if we do not use them correctly, they can become a box of surprises.
We must be fully aware of its advantages and disadvantages , as well as the use we are going to give it, the term for which we contract it and the availability of funds to replenish the credit granted upon its expiration.
In general, in relation to credit policies we are interested in knowing the following points:
Definition and operation
A credit policy is a temporary transfer of the night clubs and bars email list right to borrow up to a certain limit granted by a financial institution, with the policyholder having to pay interest only on the amounts actually drawn down and not on the entire credit granted. However, it is common for financial institutions to also charge some type of commission for amounts not drawn down.
Associated with a current account
All credit policies have an associated current account , although it is also common to use them as if they were a current account. In this way, they are very convenient for the companies that use them.
Maturity
They are usually used mainly in the short term, with maturities that usually range between six months and two years , although sometimes they end up becoming long-term operations in practice with tacitly extended maturities.
Payment of interest
Interest payments are usually made quarterly and usually also include fees for undrawn amounts. In addition, it is advisable to closely monitor that there are no overdrafts, since if they are authorized, they will accrue fees and higher interest rates.
Renewal of credit policy
It is essential to be clear that, upon maturity, the financial institution has no obligation to renew a credit policy, especially if the company's financial situation has deteriorated .
