Bank Line of Credit

The concept of bank line of credit is extensively used in the context of bank credit. This moral agreement requires some documentation. The term period of bank line of credit is usually one year. Explanation and Nature of Bank Line of CreditThe bank line of credit is a certain amount of money that is procured by a debtor, normally an individual, from a particular bank. The bank line of credit is not a contractual agreement as such. It is more of a moral agreement that is reached between a bank and its debtor. Expenses in a Bank Line of Credit In a bank line of credit there is normally no arrangement for a commitment fee. However, the debtor does need to pay a certain amount of money as a form of compensation for the interest payment, which is not taken by the bank that is acting as lender. In general this amount is calculated as ten percent of the line and ten percent of the money that has been taken under the bank line of credit. These calculations are normally performed as per the established rules of credit. The amount of money that is borrowed under the bank line of credit is normally an internal limit. It is governed by the lending bank. Documentation in Bank Line of Credit There is a certain amount of documentation required with respect to bank lines of credit. The lines of credit are normally documented by providing the depositor with a letter.Term Period of Bank Line of Credit Under normal circumstances the term period of the bank lines of credit is one year. Difference with Revolving Lines of Credit The bank line of credit is different from a revolving line of credit. The revolving lines of credit are contractual in nature and also have a certain amount of commitment fee.

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Last Updated on : 9th July 2013

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