What is Rotary Loan: What Kind of LoanOn January 11, 2020 by admin
Especially, rotary loans that are recommended to be used by businesses with urgent cash shortages can be referred to as Rotary Loan for short. The Rotary Loan, which is used as the current account abbreviation for the borrower, enables the enterprises to use loans very quickly in emergency situations after the agreements they made with the bank. In this context, it will be useful to address issues such as what is Rotary Loan and what kind of loan it is.
Expectations of retail and commercial consumers from basic banking services are quite different and needs should be met in the best way for each customer. In this context, satisfying the needs of commercial enterprises caused many and different types of credit products to be issued for banks, and the rotating loan product is one of them.
What is Rotary Loan?
The product, which makes it possible to withdraw money provided that it is limited by the amount of financing, which is the result of the loan application made for the maturity of up to 1 year before when there is an urgent need for cash, is called rotary credit.
The most important difference of the rotating loan product from other loans is that it is a product that can be used at any time for a year and is subject to interest in the process until its reimbursement. Rotating loan currency used by most SMEs has a large share of 20% to 30% among the basic banking services that businesses benefit.
Why Revolving Loans are Important?
The most important feature of revolving loans is that businesses solve their problems completely during the urgent cash need, but there are some benefits for banks as well. The interest on rotating loans is calculated daily, which means that the interest will run every day until the debt is closed.
Although how much interest is determined entirely after the agreement with the bank, it is necessary to know from the beginning that this loan will be given at a high interest rate since it is a costly loan. Nevertheless, it is obvious that this product will not be used in a long-term need, as the purpose of a rotating loan is to meet short-term, urgent needs as quickly as possible.
Let us consider business A in order to give an example of the importance of revolving credit. Company A just imported large amounts of production for the past day and spent a large part of its deposit on this raw material purchase. Company B, which is in contact with enterprise A, wanted to purchase goods from enterprise A as soon as possible, provided that the transportation costs are met, but the deposit of enterprise A to cover this cost will be only 7 days later.
In this case, applying to the bank A must do, requesting a rotating loan and selling the goods by paying the transportation costs with the rotary loan it took on the same day and repaying the entire bank loan with the money that will come after 7 days.
How is Rotary Loan (Rotary Loan) Used?
Operators wishing to use a revolving loan must discuss this with the bank representative before the need for a loan occurs. The fact that a revolving loan account has been opened does not mean that an additional cost will be incurred, and it does not cause any cost to the user in the process of not using a revolving loan. Therefore, to predict the situations where rotary credit can be used and to perform the necessary procedures for a rotary loan application for once, will provide the opportunity to benefit from a quick solution despite any urgent need that may arise during 1 year.
Some banks also ensure that the rotating loan application is approved on the same day, which means that the borrower does not require the current account to be opened.
After notifying the bank that a rotating loan is required, the application is processed immediately and evaluated and answered within a very short time. As a result of the evaluation, the credits of the operators whose applications are responded positively are transferred to the company account.
What to Consider When Using Rotary Loan (Rotary Loan)
Rotating credit is a very useful product, but it should not be forgotten that it is a product developed for short-term needs. It will be very costly to meet long-term needs through revolving loans, so it is necessary to use revolving loans as short as possible.
Revolving loan products can be maturized for a maximum of 12 months, the principal debt arising from the loans used during this period is paid immediately, but interest payments for the relevant debt period must be paid in March, June, September or December. In this respect, it is seen that the revolving loan is similar to a current account contract.
Depending on the limit to which the revolving loan will be used, depending on the revenues submitted to the bank, company structure and other details, increasing the borrowing limit can only be possible by providing additional guarantees. Before using a revolving loan, it is necessary to submit some documents to the bank for once, just like making a loan application. After submitting these documents, the bank assigns a borrowing limit to the commercial account and it is possible to withdraw the loan at any time within the limit.
When the loan is repaid, the loan can be with the same limit again, so the limit does not decrease. For example, a company that has the opportunity to use a 200,000 USD rotating loan can withdraw a loan of 50 thousand USD and repay it after 7 days, with a limit of 200 thousand USD, but if it wants to take a new loan without paying, it will be able to withdraw a maximum of 150 thousand.
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