Last modified:Tuesday 1 October 2019
Credit is one of the main sources of funding for a company, together with capital and self-financing.
What is meant by credit?
In the etymological sense of the term, credit means placing trust in a person, company or project, etc.
By credit we mean: any financial facility granted by third parties to a company, leading to a debt to the former and requiring repayment, and likely to lead to the payment of interest.
In this sense, the term credit is directly linked to debts classed as liabilities on the balance sheet, and forming capital from third parties financing the company.
We also talk about third-party funds, debts, loans, borrowing, but these different concepts are in fact, to one degree or another, more restrictive than the concept of credit as defined here.
What are the different types of credits?
Based on the specific form that they take for the company
- The availability of a sum of money
- The economic availability of an asset
- The granting of an overdraft facility
- The granting of an extension for paying a sum due
Based on their accounting nature
- Financial credit
- Commercial credit
- Other credits
Based on their term
- Short term (less than a year)
- Medium and long term (over a year)
Based on their purpose
- Financing an investment
- Financing cash flow/working capital needs
Based on their compensation
- Company investors
- Individual investors
- Private (banks) and public credit institutions
- Leasing companies
- Factoring companies
It should be noted that the entrepreneur him/herself can also intervene for his/her company as a credit counterparty.
Based on their technical form
- Subordinated loan
- Mandatory loan (not subordinated)
- Hybrid credit (often associated with equity)
- Classic loan (investment credit, instalment operation, etc.)
- Fixed-term advances (straight loans)
- Leasing or finance-lease debt
- Supplier payment period
- Payment period granted by other third parties
- Other credits
Based on their related terms and obligations, notably
- Degree of payability and repayment rate
- Payment of interest
- Related guarantee
Among all these credits, the principle source of financing is financial credits.