A credit facility is basically a pre-approved loan facility that is made in the business context. It allows an individual or organization to borrow a certain amount of money over a period of time. This can either be on a secured or unsecured advance basis.
What are types of credit facilities provided by banks in Nigeria?
Basically, credit facilities are generally classified into two types. These are fund-based credit and Non-Fund based credit. Fund based credit is a situation whereby the bank gives you a loan from which you can draw cash. On the other hand, non-based as the name implies means no funds are involved.
Fund based Credit
- Short-Term Loans:
As the name implies, this type of loan is always on a short-term basis. Organizations leverage this loan provision to cater to their urgent needs. They usually limit this type of loan to a tenor of one year. And it can be a secured loan or not. This depends on your organization’s credit rating or the bank’s requirement.
- Long-term Loans:
As the name implies, this provision is made available over a long period. Most loan options that fall under this category are usually repayable in more than three years. Businesses and individuals can leverage loan offerings under this category. But you must have an excellent credit score.
- Medium-term Loans:
Loan provisions under this category are between one and three years. It is available to individuals and organizations.
- Cash and Credit overdraft:
Cash and Credit overdraft is a type of loan offered by banks in Nigeria. It allows your business or organization to withdraw extra cash more than it has in savings. The interest rate on this loan applies to the extra cash withdrawn. To access this type of loan, your organization must have a good credit score.
- Composite Loans:
Banks in Nigeria provide this loan option to organizations for buying capital assets. Also, it is effective in meeting working capital requirements.
- Retail Loans:
Banks give retail loans to meet personal needs. This type of loan is usually small as compared to those they give out to organizations. Under this option are Education loans, medical loans, Auto loans, etc.
- Bridge Loans:
Banks give bridge loans to organizations that are in dire need of capital for funding projects. The aim of this loan is to meet the organizations’ need, while they wait for a long time financing,
Banks in Nigeria offer a guarantee on behalf of their customers. Guarantee is basically a promise that a bank issues that a debtor will meet his or her liabilities. However, if in the event that the lender does not meet with his liability, the bank will be responsible to cover for the loss. Bank Guarantee can either be the performance, defer or payment.
- Letter of Credit:
This is an undertaking letter banks write on behalf of a buyer to the seller. They mostly use letters of credit in international trade.
Banks in Nigeria provide credit facilities that individuals and organizations can leverage. To find more about these facilities, you can visit your bank for more information.