Borrowers can often choose a period of nterest and set the interest rate they pay during that period for each advance they receive. For revolving loans, borrowers may face high commitment fees and may have minimum and maximum limits for the amount that can be withdrawn at any time. An overdraft or working capital mechanism solves companies` short-term cash flow problems. The bank or any other financial institution decides whether they lend money and the border. Since an overdraft is normally to be paid on demand, it is unsuitable for purposes such as financing a major acquisition. As a general rule, the lender does not call the overdraft in controversies, unless the lender`s financial situation or activities are of concern to the lender. Because small businesses may have difficulty having reasonable monthly cash flows, an unrelated facility can help them work until they have a greater presence in the market and increase their annual turnover. A revolving credit contract is similar to a long-term loan, as it is usually a committed facility that provides a maximum amount of capital over an agreed period. (A promised facility is that, after the implementation of the facility agreement, the lender is required to provide money at the borrower`s request, provided the borrower meets certain pre-agreed terms.) It is likely that a renewable facility will have more restrictions than an overdraft. For example, there may be minimum termination times before an amount is advanced; the lender may set lower ceilings and limits for amounts that can be drawn at any time or for the number of interest periods that may exist in parallel at any time (to reduce the administrative burden on the lender) and the lender may reduce available resources towards the end of the period.
Because the availability time for discounts is long, the commitment fee will be higher. (Commitment fees are fees payable to a lender for available but unused amounts and are calculated from time to time as a percentage of these unused funds. The commitment fee is not as much as the interest, because the lender does not take a risk on the money.) Finally, this month, we are looking at revolving credit facilities.
