Is a Bank Loan Similar to a Line of Credit?

There are obvious similarities between a bank loan and a line of credit. In both cases it is a loan from a bank or lender. However, a line of credit can also be obtained from a third-party lender. This is where a lender steps in if the bank refuses their client a line of credit. Here in Switzerland, there are companies that are experts in this field. This will be dealt with below.  

What is a Bank Loan? 

There are two forms of bank loans. A secured loan and an unsecured loan. An unsecured loan means there is no security. The loan is made on the strength of the borrower’s reputation, income, turnover and profit. A secured loan as the name implies means loans that are granted against security. 

These loans are essentially broken down into two different categories. Corporate and private individual(s). Individual loans can be anything from car loans, to mortgages, to a loan against salary. There are many types of loans banks can offer the individual.  

Loans to companies or corporates can take many different forms. A company may need a short-term loan to cover salaries or to increase the size of their factory. The bank will decide if the loan will be secured or unsecured.  

In all cases a bank loan will be a set amount for a set period with a repayment schedule and interest rate. The loan will be paid back on an agreed date. If the client needs another loan they will have to reapply. 

What is a Line of Credit? 

A line of credit, (or credit line), works differently from a straight bank loan. The borrower usually a corporate or company is offered a set credit limit. A line of credit can be repaid over an agreed period. Repayment is usually part principal and interest. However, whilst the line of credit is live, the borrower can keep borrowing up to the agreed limit. 

If the line of credit is for a new project the borrowings may be divided into sections. For example, day to day business expenses including salaries. Initial costs of heavy equipment for land clearing if needed. Purchase of raw materials for building projects etc. This way the lender can keep track of the borrowers spending. 

Third Party Lenders 

Third-party lenders are lenders who replace banks who refuse to lend against Demand / Bank Guarantees. Unlike the traditional lenders, third-party lenders are prepared to lend against a Demand / Bank Guarantee as this is more liquid than property or a fixed asset for example. 

As we are all aware, banks have drastically cut their loan books. This is just as prevalent here in Switzerland as it is in say the USA, the United Kingdom and the Middle and Far East Asia. So where do companies find credit facilities as the banks are no longer lending? 

Demand / Bank Guarantees have become the new way to obtain a line of credit or loan. Companies are leasing Demand Bank Guarantees and offering them as security to banks. If their bank accepts the security, they will offer their client a line of credit. 

However, some banks may refuse to lend against Demand /Bank Guarantees if their exposure to the Issuing Bank is too great or too complicated. This is where the third-party lenders come into their own. Here in Switzerland, we have companies who specialise in providing private funds against security of this type. 

IntaCapital Swiss SA, Geneva supply access to lines of credit through their Collateral Transfer Facility. This highly popular financial model has been utilised by companies for over a decade. They also supply third-party lenders to clients whose bankers have refused to lend against many Demand / Bank Guarantee. 

Please visit IntaCapital Swiss for more information.

Are you a company stuggling to obtain a Loan or Line of Credit? Then now’s the time to act. He who hesitates can miss the opportunity to obtain a Line of Credit.