From complexity perspective this is the simplest structure as it has no specific purpose for financing, the Borrower may utilize the funds for whatever needs like paying the bills and invoices for energy costs, business suppliers, travelling expenses, taxes and salaries etc. So that, the Bank just set one limit usually in form of Overdraft and does not regulate further its utilization. The Client uses this facility in daily drawings and his outstanding balance is adjusted by each incoming/outgoing payment. Such facilities are commonly granted among other also to SME entities based on sort of “simplified” approval process (currently there are trends across EU to provide those micro-loans on-line through web processing).
As a security, the Bank usually requires depending on the rating/financial standing of the Borrower following:
- Own Promissory note
- No specific collateral (unsecured loan)
Usual documentation type to be signed with Client:
- Loan agreement on Overdraft
- Promissory note agreement (if secured with this collateral)