A revolving loan is a specific type of loan that has its own characteristics and conditions. What is its essence, and what characteristics are inherent in it, we will figure it out in this article.
In the modern world, everything changes extremely quickly, so any organization may face a situation of lack of its own funds to ensure any production process. In these cases, a revolving loan comes to the rescue.
What is a revolving loan?
A working capital loan or, as it is also called, a working capital loan is a loan intended to replenish the working capital of a company.
Working capital includes those means of production that are fully consumed in each production cycle and are reimbursed after it, while their value is fully included in the cost of the finished product.
In particular, these are:
- production stocks, which include materials, raw materials, semi-finished products, containers, fuel, spare parts, components;
- unfinished production;
- various expenses related to the future time: these can be funds intended for the development of new products, rent for several months in advance, subscription to printed publications, etc.;
- the so-called circulation funds are finished products in the warehouse; goods shipped to the buyer, but not yet paid for; money on hand, on current accounts and in the form of accounts receivable.
The value of a revolving loan
A revolving loan is essential for the normal functioning of the enterprise, since it allows you to continue to carry out the main activity and avoid the occurrence of losses. It also maintains the stability of the firm's income and makes the business more profitable.
Features of revolving lending
- A revolving loan has a specific term of granting. Typically, this is 3 years.
- To receive funds under the terms of revolving lending, it is necessary to provide a surety or a pledge. The guarantor is most often the owners of organizations, and the pledge is the property of the enterprises.
- In the event that the amount of the collateral does not cover the risks of the loan, they attract the guarantee of the guarantee fund - a special state institution that exists to help small businesses in obtaining circulating loans.
Conditions for granting a revolving loan
In addition to the requirements listed above, certain criteria are established that the borrower must meet. These include:
- the term of the company must be more than 1 year;
- the owner of the enterprise must be a citizen of the Russian Federation aged 22 to 60 years with a permanent residence permit in the region where the bank is located;
- the organization, like the location of the pledged property, must be located within a radius of 150 km from the branch of the bank issuing the loan.
Benefits of a revolving loan
Despite the existing restrictions on applying for a loan, it certainly has the following advantages:
- short terms of issue;
- a small package of documents required to receive funds;
- taking into account the seasonality of the organization's activities when forming a debt repayment schedule;
- providing the possibility of early repayment of the loan without fines and penalties;
- the possibility of receiving a large amount of funds in foreign currency and rubles for a short period.
Thus, a revolving loan is an important financial instrument that allows businesses to operate and “stay afloat” in a difficult economic situation.
