1. What is credit?
1. Definition of credit
Credit refers to the funds provided by commercial banks to non-financial institution customers, or the guarantees made by customers for compensation and payment obligations that may arise in relevant economic activities, including on-balance sheet businesses such as loans, trade financing, bill financing, financial leasing, overdrafts, and various advances, as well as off-balance sheet businesses such as bill acceptance, issuance of letters of credit, letters of guarantee, standby letters of credit, letter of credit confirmation, bond issuance guarantees, loan guarantees, asset sales with recourse, and unused irrevocable loan commitments.
To put it simply, the bank approves a quota for enterprises/individuals, within which there are corresponding business varieties, and the quota can be recycled within a certain period of time. For example, if you have a credit card with a limit of 10,000, this is called credit. Whether you use it or not, when you use it, whatever you want, as long as the card is still valid, you can directly consume anytime, anywhere.
2. Credit classification
According to the division of different dimensions, credit can be divided into:
2.1. Classification according to whether it is reflected in the financial statements:
On-balance sheet credit: including loans, project finance, trade finance, discounting, overdraft, factoring, lending and repurchase, etc., which will be reflected on the balance sheet of the bank and directly affect the bank's asset and liability structure.
Off-balance sheet credit: including loan commitments, guarantees, letters of credit, bill acceptances and other businesses, although these businesses are not directly reflected on the balance sheet, they will have an impact on the bank's economic capital occupation and risk level.
2.2. According to the details, it can be divided into the highest amount of credit and sub-credit:
The maximum credit line refers to the maximum credit limit approved by the customer and which the bank is willing and able to bear;
Itemized credit is a sub-limit set for different types of financing business based on different risk causes and risk characteristics under the maximum credit line, such as working capital loans, project financing, financing guarantees or standby letters of credit.
For example, the bank gave Company A the highest credit line of 1 billion yuan, which was subdivided into a project loan line of 500 million yuan, a working capital loan line of 250 million yuan, a bank acceptance bill line of 50 million yuan, and a trade financing line of 200 million yuan.
2.3. Classification by term:
Short-term credit: refers to the credit of less than one year (including one year), which is mainly used to meet the short-term capital needs of customers, such as working capital loans, trade financing, etc.
Medium and long-term credit: refers to the credit of more than one year, which is mainly used for long-term investment or financial support for large-scale projects, such as fixed asset loans, project financing, etc.
2.4. Classification by nature:
Basic credit: A conventional credit line determined by the commercial bank according to the customer's basic situation and credit status. This line can be recycled during the validity period of the credit and used for the normal business activities of customers.
Special credit: additional credit support given by commercial banks for specific financing projects or needs that exceed the basic credit line. Special credit is usually granted based on national policies, changes in market conditions, and the special needs of customers.
2.5. Classification according to approval and management methods:
Open and unified credit: A method of granting credit to multiple financial institutions at the same time, in which one or more major crediting banks are responsible for coordination and management, and other participating financial institutions extend credit according to unified conditions and quotas.
Unified internal credit: Commercial banks carry out centralized management and control of all credit services of the same customer to avoid excessive dispersion and loss of control of credit risks.
2. What is a loan?
1. Definition of loan
Bank loan refers to an economic behavior in which a bank lends funds to those in need of funds at a certain interest rate in accordance with national policies, and repays them within an agreed period. Generally, it is a one-time act, requiring a guarantee, a house mortgage, or proof of income, and a good personal credit before applying.
For example, the loan is that you go to the bank to apply for a loan of 30,000 yuan to buy a house in Hegang, and pay off your salary next month, and the loan business for 30,000 yuan is over.
2. Loan classification
Loans can be classified from a variety of perspectives, and here are the common ways to classify them:
2.1. According to the term of the loan:
Short-term loans: loans with a loan term of less than one year (including one year).
Medium-term loans: loans with a loan term of more than one year (excluding one year) to five years (including five years).
Long-term loans: loans with a loan term of more than five years (excluding five years).
2.2. According to the way of loan guarantee:
Line of Credit: A loan that is based on the creditworthiness of the borrower and does not require specific guarantees.
Mortgage loan: A loan applied to a bank by a borrower with physical assets such as real estate, land, and equipment owned by a third party as collateral.
Pledged loan: A loan applied to a bank by a borrower for movable assets such as securities, certificates of deposit, jewelry, and precious metals held by the borrower as collateral.
Guaranteed Loan: A third party provides a joint and several liability guarantee for the borrower, and when the borrower is unable to repay the loan, the guarantor is responsible for repayment.
2.3. According to the purpose of the loan:
Operating loans: loans used for business activities such as daily operations, expansion of production, and procurement of raw materials.
Consumer loans: Loans for individual consumers to purchase large amounts of consumer goods, pay for education, medical care, travel, and more.
Real estate loans: including personal housing loans (mortgage loans), commercial real estate loans, etc., for the purchase or construction of real estate projects.
Start-up Loan: A special loan for entrepreneurs to start or expand their entrepreneurial projects.
2.4. Divided by loan subjects:
Personal loans: loans for individual consumers, such as personal consumption loans, personal housing loans, etc.
Enterprise loans: loans for industrial and commercial enterprises, such as working capital loans, fixed asset loans, project financing, etc.
2.5. According to the loan interest rate:
Fixed-rate loans: Loans that have a constant interest rate throughout the loan term.
Variable Rate Loans: Loans whose interest rates adjust in response to changes in market interest rates.
2.6. Divided by loan currency:
Renminbi loans: Loans denominated and settled in RMB.
Foreign Currency Loans: Loans denominated and settled in currencies other than RMB.
3. The main difference between credit and loan
Main Differences Between Credit and Loan,
Let's compare it from the following dimensions, as follows:
3.1. The essence of the two is different:
Credit is a kind of credit commitment, which is a line of credit that banks or other financial institutions pre-approve for the capital needs that customers may need in the future for a period of time, and customers can flexibly use funds within the credit line without having to re-apply every time.
Loan refers to a form of credit activity in which a bank or other financial institution lends monetary funds at a certain interest rate and must be returned, and is a specific financial product, in which a bank or other financial institution lends funds to a borrower in accordance with the agreed conditions (such as amount, interest rate, term, etc.), and the borrower needs to repay the principal and interest according to the agreement.
3.2. The principles of the two are different:
1. The principle of credit:
(1) Differentiated credit should be granted according to factors such as the level of economic development, economic and financial management capabilities, the occupation and use of credit funds, and the financial risk status of different regions.
(2) Different credit lines should be determined according to the operation and management level, asset-liability ratio, loan repayment ability and other factors of different customers.
(3) The credit line for each region and customers should be adjusted in a timely manner according to the financial risks of each region and the credit changes of customers.
(4) The amount of each loan and the actual total amount of loans shall be specifically determined within the determined credit line according to the actual capital needs, repayment ability, credit policy and ability of the bank to provide loans within the determined credit line. The credit line is not the planned loan line, nor is it the allocated loan scale, but the internal control loan line implemented by the commercial bank to control the regional and customer risks.
2. Principles of loans:
(1) Loan security is the primary issue faced by commercial banks.
(2) Liquidity refers to the ability to recover loans within a predetermined period or to quickly liquidate them without loss to meet the needs of customers to withdraw deposits at any time.
(3) Efficiency is the basis for the continuous operation of banks.
3.3. The term of the two is different:
The credit term usually refers to the maximum period that the bank is willing to provide credit support, during which the customer can use the funds at any time, as long as the total amount does not exceed the credit line, it can be recycled an unlimited number of times.
The loan term refers to the time limit that the borrower needs to agree on in the contract when applying for the loan, and needs to repay the loan within this agreed time, which is a relatively specific and clear time frame.
3.4. Difference between use and repayment:
Within the credit limit, customers can withdraw and repay funds as many times as they want, as long as the total usage limit is kept up to the credit limit.
Loans are usually disbursed in full at once, with the borrower repaying the principal and interest on a regular basis according to an agreed repayment schedule.
In general, a credit line is a type of credit line grant that provides flexibility in the use of funds, while a loan is a specific debt covenant that involves a specific repayment plan and interest payments. Credit is more about the bank's expectations of customer trust and future cooperation, while lending is more focused on specific financial transactions and risk management.
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