Bank Credit – importance and types
There are several types of bank credit: commercial, consumer, mortgage, Lombard (loan secured by a pledge of securities or other movable assets).
Bank credit is the most common form of business financing.
It provides short-term (up to 1 year and for a specific purpose – usually consumer loans granted to individuals), medium-term (up to 3 years) or long-term (investment) financing. The Bank determines a fixed period for which the loan is granted. An interest rate, term and amount of payments are set.
All this defines a bank loan as a bilateral, remunerative and formal contract (in writing).
Bank loan – Guarantees and Strategies
The bank often requires guarantees (collateral) from the business for the loan. Often, however, these are personal guarantees provided by the entrepreneur.
A good strategy is to take out a bank loan to finance investments in fixed assets. Like real estate, land, machinery. Banks charge similar loans at a lower interest rate. The interest rate can be fixed (for example, 8% per annum on the outstanding amount) or variable (when the interest rate varies depending on the base interest rate of the National Bank – BNB).
However, bank credit provides less flexibility than overdraft. The business is committed to meeting the repayment of the bank loan and interest – which it must do no matter how good the company’s revenues and cash flows are. Warning: non-compliance with the terms of the bank loan may lead to the bankruptcy of your business.
Restrictions and requirements
Stricter restrictions and measures are required for the granting of some bank loans. Such bank loans are granted to bank administrators, shareholders, accountants related to the bank, banking supervisors and others. In these cases, there must be a unanimous decision of the collective management body of the bank and the head of the internal control service to grant the loan.
Bank Deposit – meaning and types
The bank deposit agreement between the depositor and the bank is determined by Article 420 of the Commercial Law. The two main types of bank deposits are ordinary and cash. And according to the duration of the deposit: term and indefinite.
According to the contract for the ordinary deposit, the bank is obliged to store and keep the items and valuables handed over to it by the client for a respective fee. The Bank has no right to use in any way the valuables transferred to it on deposit.
The contract is bilateral and remunerative. Real, informal and long-lasting. It can be fixed or indefinite.
A contract under which the bank must return the amount received in the same currency and amount, together with the agreed interest rate. The subject of the contract is only cash and is unilateral, real, remunerative and formal. In addition, it can be both fixed-term and indefinite.
The legal side of a bank lending
Always ensure the maximum from a legal point of view when resorting to such an important step as concluding a bank loan agreement. For a long time now, banks have not used cheap numbers (at least the larger ones) as passages in a smaller font. However, the contract is really massive in volume and there are a number of important points within it that should not be overlooked.
Whether you are an individual or a legal entity, VD&A can provide you with the necessary legal support and expertise for the correct signing of your bank loan agreement. You can also contact us if you have legal difficulties with an already concluded bank loan agreement.