Available to the self-employed and any type of business, cash credit applies in the following cases:

• creation of a business;
• growth of the business;
• relatively long operating cycle;
• opportunities for investment in equipment;
• opportunities for building up stock;
• long terms of payment given to customers;
• prepayment of suppliers so as to benefit from discounts;
• seasonal activity.

This financing solution can be particularly useful for businesses that experience major seasonal fluctuations in terms of turnover.

Documentation or description of the business

• copy of the company’s articles of association;
• group structure if the company is part of a more complex group;
• last 3 audited balance sheets of the borrower and, if applicable, the latest available trial balance;
• recent supporting documentation regarding VAT, tax and social security situations;
• order book (where applicable);
• list of customers and their relative contribution to turnover;
• list of suppliers.

Presentation of the application

• cash flow statement;
• forecast budget showing future working capital requirements;
• calculation of the effect of the discount on cash flow requirements.

Guarantees

For the bank, cash credit represents a very high-risk type of credit. Therefore, guarantees are required depending on the customer’s reputation and the extent of the credit line compared to the customer’s financial commitments, its turnover and the overall financial structure of the business. The most common guarantees requested for cash credit are:

• pledge on business assets;
• the surety of the parent company or partners/shareholders;
• various moral guarantees.

When the partners/shareholders of a business have to stand surety for the company, the bank should be provided with the details of their financial situation.

Duration and amount

Duration

• short-term, but generally renewed at maturity;
• the bank can terminate the facility in the short-term, i.e. between one and 3 months.

Amount

Determined according to the specific characteristics of the sector of activity and the size of the business, as well as its balance sheet structure.

Interest rate

• interest rate depending on the quality of the client, the project and the guarantees offered;
• variable rate;
• interest to be paid on the amount used.

Refunds

Repayment at maturity, unless stipulated otherwise in the contract.

Set-up times

The reviewing and processing times depend on the complexity, size and urgency of the case.

Advantages, disadvantages and risks

Advantages

• can be used to offset temporary cash flow shortages which may occur during the business’ operating cycle, the extent and duration of which cannot be accurately anticipated;
• can be used to quickly pay suppliers so as to benefit from significant discounts;
• extremely adaptable and flexible form of credit allowing the borrower to use the credit freely, provided that the credit limits are complied with;
• possibility of repaying the credit at any time and terminating it without incurring any additional costs.

Disadvantages

• higher rate of interest compared to other means of bank financing;
• sometimes the cost of the reservation fee or the permanent availability of the credit line, which is due whether the credit is used or not;
• short notice period if the bank decides to terminate the facility;
• guarantees to be provided to the bank.

Risks

• cash credit can endanger the business’ profitability if it is used for purposes which are not linked to its activity;
• in view of the short notice period that may be given by the bank, the business could find itself unable to repay the loan.