A long-term loan for equipment, real estate or working capital is repaid within one to twenty-five years by a monthly or quarterly repayment plan. The loan requires guarantees and a strict authorisation procedure to reduce the risk of repayment. The loan is suitable for established small businesses, with strong accounts and a large down payment to minimize the amount of payments and the total cost of credit. A temporary loan from a bank, a promised facility, is intended for a specified amount with a certain amount of repayment and a fixed or variable interest rate. For example, many banks have long-term programs that provide small businesses with the money they need to operate monthly. In many cases, a small business uses cash to purchase equipment such as production facilities. Unrelated facilities are generally less expensive than the facilities incurred, as the lender is not required to extend the loan; when financing is made available, it is short-term and credit risk is relatively low. An unrelated facility is an agreement between a lender and a borrower, in which the lender agrees to provide short-term financing to the borrower. This differs from a linked facility that contains clearly defined terms, established by the lender and imposed on the borrower. Unrelated facilities are used to finance the seasonal or temporary needs of businesses with variable incomes, for example. B creditors pay to earn commercial discounts, one-off or one-time transactions and the performance of wage obligations. Unhired facilities can contribute to the provision of short-term financing or the borrowing of a business, without the need to set clear terms or the possibility of extending the loan.
A borrower may benefit from an unrelated facility or an unrelated line of credit to cope with seasonal changes in income or short-term payment obligations (e.g. B an overdraft facility). In trade finance, unrelated trade finance facilities can help overcome short-term payment requirements, such as the purchase of bulk goods. B when prices suddenly fall and a commercial discount can be obtained for the purchase of larger volumes. The unrelated nature of the investment means that a funder is not required to lend. In each document, there are generally “lower limits” that indicate as much as possible that a business can borrow for certain types of transactions. However, even if the criteria are met, a bank is still not required to provide loans when a borrower makes an application. An unsuitable facility is used to finance a company`s short-term needs. This can be explained by fluctuations in cash flows, short-term trades, seasonality, pay differentials during the year or a number of other issues. Unrelated facilities are generally less expensive to organize, as credit risk is lower due to shorter trade terms and the lender has not committed the capital, which will make it more comfortable. They also less likely have many specific conditions.