Term loan and line of credit 

In the case of a term loan, a financial institution gives the customer a certain amount of money, which the latter must return, plus interest, at the end of a pre-established term. In the case of a line of credit, a financial institution undertakes to place a pre-established amount of money at the disposal of the customer for a pre-established period of time. The financial institution then collects periodic interest on this amount and these transactions can be seen in the current account.

Characteristics

• The main difference between the two operations is that, in the case of term loans, the money is handed over the moment the contract is signed, whereas, in the case of lines of credit, the lender undertakes to leave funds (up to a specific limit) at the disposal of the borrower in the current account expressly opened for this purpose.
• As a financial instrument a term loan is generally preferred, as personal and business lines of credit are generally used immediately for the purpose for which this service was requested.
• When financing current assets or long-term investments, it is more usual to request a line of credit.
• In both cases a certifying public officer is usually involved and most are formalized through loan agreements, as this process is simpler and the cost lower.
• A document of public record is also necessary at times, for example, when dealing with real securities, complex transactions or substantial sums of money.
• As regards priority in the event of lien actions, the term loan agreement is a document that acknowledges a cash debt and thus constitutes a liability. In the case of lines of credit, the debt is not in cash nor is it a liability; however, it will need to undergo a process to adjust the final balance before liquidation.

More information

• Spanish Confederation of Savings Banks

  Alcalá, 27

  28014 Madrid

  Telf.: 91 596 50 00

• Official Credit Institute 

  Paseo del Prado, 4

  28014 Madrid

  Tel.: 900 121 121

  Fax: 0034 91 532 19 33

• Axis, Participaciones Empresariales SGECR, S.A. - AXIS

  C/ Los Madrazo, nº 38 2ª

  28014 Madrid

  Tel.: 0034 91 523 16 54 / 37

  Fax: 0034 91 532 19 33

• Spanish Company for development financing

  C/ Príncipe de Vergara, nº 132, planta 12

  28002 Madrid

  Tel.: 0034 91 745 44 80 - 0034 91 562 60 08

  Fax: 0034 91 561 00 15

  e-mail: cofides@cofides.es

• Centre for Industrial Technological Development 

  C/ Cid, 4

  28001 Madrid

  Tel 0034 91 581 55 00

  Fax: 0034 91 581 55 94 - 581 55 86 - 581 55 76

  e-mail: info@cdti.es