Credit policy: everything you need to know

A credit policy is a widely used financial instrument through which loans are obtained for companies.

The policy is the document in which the operation that normally is formalized before a notary is materialized. This is where all the conditions, amounts and deadlines at which the operation is carried out, as well as the personal data of both parties.

The amount granted is deposited in a special credit account, which has a very similar operation to that of a common current account, since it allows the realization of refunds and impositions throughout its validity.

Information that a credit policy must contain

Information that a credit policy must contain

In addition to the complete data of the financial institution that grants it and of the company that receives it, it includes:

  • The amount granted: this is the maximum amount that is made available to the company during the agreed time period
  • Expiration term: it must be clearly indicated, what will be the expiration date of the operation, in order to redo a new renewal study. On some occasions, the renewal is tacit and you no longer have to go through the notary again.
  • Fees and applicable interest: It is at the time of signing when you have to agree on the fees and interest rates to apply for the concession of the operation.

As a general rule, commissions in a credit policy usually consist of:

  • Opening commission: Its amount varies depending on the financial institutions, but it is applied because it is like a variable loan.
  • Commission for available balance: Each time the company makes a refund of the credit account this commission will be applied
  • Non-availability commission: In the event that the company has not needed to make use of the entire amount granted, a commission may also be applied for the balance not provided.
  • Interest for exceeded: This interest is applied in the event that the provisions made by the company exceed the limit granted. It will be higher than the applicable interest for each of the refunds within the granted balance.

There may be additional costs for the existence of guarantees plus the public notary’s fees.

As can be seen from these data, the cost for a company of a credit policy is quite considerable, so it is necessary to be very clear, in which cases it is necessary to request this operation from the financial entity.

When is a credit policy necessary?

When is a credit policy necessary?

Credit policies are useful financial instruments for very particular cases.

Let’s give an example …

Imagine a company that makes a considerable sale and will not charge it for another year.

However, during these 12 months, you will have to bear the tax payments plus the consequent VAT.

In this case, the request for a credit policy that covers these expenses until the time of the capital injection comes is more than justified.

Different ways a credit policy can take …

Credit line

As the name implies, a line of credit is an account owned by some companies through which a specific amount of money is granted for a limited time.

Revolving credit

The best known revolving credit in our society is that which a financial entity grants to a physical or legal individual through credit cards.

Credit without Guarantee

Credit without Guarantee

A credit without collateral is any form of credit that is granted without the presence of collateral or guarantors that ensure the repayment capacity of the operation.

Credit account

A credit account is one generally granted to a company in which both provisions and impositions can be made within the amount granted.

Difference between Credit Account and Loan

There are still people who today confuse a personal loan with a credit account despite being very different financial instruments. Although in both cases there is a concession of money by the banking entity the purpose and conditions are usually very different.