You can think about the credit policies like in that moneybox that you have saved for cases of emergency or moments in which you need money of urgent form but you do not have it. In the end, credit policies are similar to loans granted by banks, although there are important differences that make them very useful financing instruments for SMEs and self-employed workers.
Having said that, we are going to specify: a credit policy is a loan that the bank grants us and whose capital we can draw on whenever we need it. And there is the key because although we have contracted one of these policies, we do not have to use the available capital if we do not consider it necessary.
The differences between a credit policy and a loan
The credit policies open a line of financing between the client and the bank. In this way, we will always have a certain amount of money to use at specific times. Therefore, when requesting one of these policies we do not receive the money that has been granted, but we are open to this when we want to use it.
On the contrary, when a loan is granted, the total requested capital comes directly to our account. Regardless of whether we spend that money or not, we will have to face the return of all the capital plus interest.
That is another key that is worth noting, because when we use a credit policy we only pay interest for the money we actually use, not for the total credit that has been granted.
For example, imagine that we are going to contract a credit policy with a cap of € 20,000. Thus, during the first months, we do not need to touch that money but an emergency forces us to withdraw € 5,000. At the time of returning the money, we will only pay interest for the € 5,000 we withdraw, not for the total of € 20,000.
The usual thing is that the credit policies are contracted with a year of expiration, after which the client can choose to renew it or not.
When a credit policy is useful
In the day to day of the companies, there are times when you need to resort to a capital that, for whatever reason, is not available. That is where the credit policy comes into play in cases such as, for example, the delay in payment of a client whose money we already had committed to own expenses of our own business.
It is, therefore, a solution for those treasury and circulating tensions that occur from time to time in any SME.
However, the use of the credit policy is not recommended for fixed or recurrent expenses that we can program and assume in another way. We must remember that, after all, the money we access is a loan that entails a series of costs and interests.
Costs of the credit policy
The main costs of this form of financing come in the form of commissions. The most common are the following, although some entities may include them and others may not:
- Opening commission: it is a percentage of the total credit that is requested and usually does not exceed 2%.
- Annual review commission: only applies in case of renewing the credit policy and its cost is usually the same as that of the opening commission.
- Availability Commission: is a percentage of the money that has not been used at the time of paying interest on the loan.
- Commission for balance exceeded: if we exceed the credit limit that we have granted we will have to face the payment of interest.
Along with these commissions, there is another series of expenses related to the contracting of an insurance policy; It should be clarified that, like the commissions, these expenses depend on the bank with which the policy is contracted. Some examples in this sense are the commission of study or the commission for early cancellation.
We end by explaining that a debt con is a resource much appreciated by many people to solve debt problems that can not wait.