Credit is a source of financing that the company uses to carry out its economic activity, but how much does it cost to obtain it? therefore, it is necessary to know what it is and how to use it.
Borrowing is sometimes very easy, but sometimes it is very difficult to pay, either for motivation or by external forces that do not allow it, in this order of ideas it is inherent to the financial issue to formulate the concepts that govern this form of financing.
The Credit and its components
Credit can be defined as the location of a capital or a purchasing power, it can be classified in terms of modalities, into several categories according to its: Duration: the credits are short, medium (from six months to five years)) or long-term (more than five years), which implies a higher remuneration in the longer term.
- Guarantee: some credits are granted only by acknowledging the debtor's honesty and solvency, but, in general, lenders usually ask for guarantees: titles, sureties, mortgages, etc. Production: The utility of production credit is known, which allows the entrepreneur to invest, solve treasury problems, meet production costs, etc. Consumption: It has been revealed as one of the most important agents of prosperity in the current industrial society, and this for various reasons, among them, is that relatively often it is a credit to the production undercover, there is a strong increase in sales, which allows mass production, thereby reducing the cost price by making purchases on credit by the consumer possible; those who have become indebted cannot stop working if they want to be able to meet the deadlines; In the event of a crisis of under-consumption or depression of demand, consumer credit allows it to maintain acceptable levels of pressure to keep the economic system functioning at acceptable levels.
In a more generic way, and not only based on the distinction between production credit and consumer credit, credit allows a better use of capital (credit institutions usually have at the disposal of the productive apparatus and businessmen the savings of individuals who have drained and thus reintegrated into the economic cycle). It favors the concentration of capital and companies (it is difficult for an entrepreneur to meet the investment need of his company using only his own funds, that is, self-financing). It stimulates the production, the capitalization and the formation of savings (without the payment of the location - interest - the propensity to save would be less), and finally, avoids having to resort to traditional means of payment (metallic currency in the past,paper money today).
Financial system: Credit institutions usually have at the disposal of the productive apparatus and entrepreneurs the savings of the individuals that have drained and thus reintegrate into the economic cycle.
In the case of inflation, how credit can be a magnificent instrument for economic policy; This then refers to the greater ease of granting credits by credit institutions, but there is an indirect form of manipulation in this field, based on the discount rate, or compulsory interest that must be paid by the applicant in exchange for the means of payment made available to you. In this way, depending on whether a policy of expensive money or cheap money is practiced, a reduction in the demand for credit or, conversely, an expansion will be achieved: that is, the reduction or expansion of the means of payment.
Who lends?
Originally, banks were in charge of currency exchange, currently, banks and savings banks, like insurance institutions, have the mission of ensuring the drainage of savings and its distribution, in the form of credit, among the economic sectors that need it. In this case we will talk about a deposit bank.
Different are the issuing banks, in charge, as their name indicates, of the issuance of monetary means (paper money, metallic currency, etc.) and which usually belong to or are closely controlled by the State.
Apart from issue and deposit banks, there is another modality, called the Industrial Bank, of more recent appearance, and which works with its own resources (capital and reserves) or with those of economic institutions or financial groups that are connected to it.
Lastly, it is clear to see how these credits are paid and how they are calculated in works on this channel, you can find information on this topic.
