Financial institutions consider several factors of the borrower`s creditworthiness before granting revolving credit. For a person, factors include creditworthiness, current income and job stability. In the case of an organization or enterprise, a financial institution reviews the balance sheet, income statement and capital flow account. The credit limit is the maximum amount of credit that a financial institution is willing to give to a customer looking for the money. The credit limit is set when the financial institution, usually a bank, enters into an agreement with the customer. Financial institutions sometimes charge a commitment fee when they establish a revolving line of credit. In addition, there are interest charges on balances opened for business borrowers and the costs of presenting consumer accounts. Revolving credit refers to a situation in which the credit replenished up to the agreed threshold, known as the credit limit, when the customer will repay debts. It allows you to transfer money to a customer`s bank account for any reason, without the need to make an actual transaction with that money. Revolving credit is useful for individuals or businesses that experience large fluctuations in cash flow or are facing unexpected expenses. Due to convenience and flexibility, a higher interest rate is usually calculated for revolving loans compared to traditional installment credits. Revolving loans usually come with variable interest rates that can be adjusted. An entity may have its revolving line of credit secured by assets owned by the company.
In this case, the total credit granted to the customer may be limited to a certain percentage of the secured asset. For example, a company may set its credit limit at 80% of its inventory balance. If the company does not commit to repaying the debt, the financial institution can close and sell the secured assets to repay the debt. . . .