Funding has different shapes- it can be a one-time or trench issue borrowed money... In the first case, the scheme for issuing money is as simple and understandable as possible, and in the second there are a number of nuances. Let us consider in more detail what is the peculiarity of the tranche of money and what it is.
Definition of the concept
A money tranche is a portion of a large amount (loan, credit, debt to a supplier) transferred from one person to another. The term is most commonly used in business, economics and banking. For example, when a legal entity takes a large loan from a bank, but receives it not in one amount, but in parts, over a certain period. In simple words, each loan received is a tranche.
There are other interpretations of the concept of "tranche", but they do not directly relate to money. So, the meaning of the word "tranche" is understood as a partial release valuable papers, share of bonded loans.
Characteristics of the cash tranche:
- The conditions of transfers are always determined in advance, and are fixed treaty.
- Several tranches within the same agreement may be different in amount or equal.
- They are always translated over a period of time. It is not correct to call a one-time transfer a tranche.
To summarize, the terms of tranche financing do not have clear regulations. Especially when it comes to lending to large and medium-sized businesses - it can be replenishment working capital, lending to a project, modernization or expansion of production. That is, both parties discuss the terms, but the key provisions of the contract are established by the one that issues the funds.
Cash flow tranches are found in different areas:
- Support from the International Monetary Fund. The IMF transfers funds in equal tranches in order to replenish the gold and foreign exchange reserve.
- Emission of funds.
- Bank lending to commercial companies, industrial enterprises. These are lines of credit on large sums issued to the card or by transfer to the current account. Financing details are discussed on an individual basis, fixed by a loan agreement.
- Among the products for individuals are interest-free lending in installments, credit cards. It would not be correct to call such financing “potranche”, but the scheme of issuance and payment is similar.
Credit tranches
The loan tranche is a part of the loan transferred from the bank to the borrower. In the vast majority of cases, the term refers to financing medium and large business... If we draw an analogy with everyday life, trench lending - installments, credit cards.
Key parameters:
- The interest rate on the loan can be the same for all tranches or different, fixed or floating.
- The percentage of the loan coverage by the pledge is set on an individual basis
- Overpayment is charged only after the actual receipt of the loan, and not after approval and signing loan agreement.
- Both ruble and foreign currency loans are provided.
Issue form - revolving or non revolving credit line. In the first case, the bank approves a certain amount of funds, conventionally - 2 million rubles. After transferring the first tranche in the amount of 800 thousand, the client pays 300 thousand rubles. The available limit will be 1.8 million rubles (2 million - 500 thousand + 300 thousand).
A non-revolving line of credit assumes a phased disbursement of borrowed funds, without increasing the available limit. All payments from the borrower are directed towards repayment of the debt. For example, under the same financing conditions in the amount of 2 million rubles, the client receives 600 thousand rubles, pays 300 thousand - the available amount is 1.4 million, the amount of debt is 300 thousand rubles.
This form of lending is beneficial to both parties: the bank finds a client, but its risks are reduced, since the money is issued in installments, and the borrower, having received approval, can borrow funds as needed.
Credit lines are opened by many banks, for example, Alfa-Bank. In this financial institution, representatives of medium and large businesses can take out a loan in one or more currencies, secured or unsecured, for a long or short term. Financing conditions are individual for each client and are discussed at the meeting. The purpose of spending funds is determined by the client himself:
- replenishment of working capital;
- acquisition of OS;
- refinancing of the loan portfolio;
- modernization of production;
- financing contracts.
Small businesses can take advantage of a revolving credit line. The amount is from 500 thousand to 10 million rubles, but depending on the turnover, the conditions may be revised. The loan term is up to a year, the repayment period is up to one and a half years, the tranche issue period is 1-6 months. After payment, part of the money is sent to pay off interest, the other - renews available limit borrowed money. Purpose of discovery line of credit- replenishment of working capital.
IMF tranche
The International Monetary Fund provides financial support on a larger scale - it gives out money not to companies, but to whole countries... Usually, total amount divided into 4 equal shares - 25% each.
The procedure for issuing, the term and purpose of using the funds are fixed by an agreement. The recipient is provided with monetary support for complying with economic and / or political conditions. If the clauses of the agreement are violated, subsequent receipts are suspended.
A tranche is a transfer of a part of the amount agreed in advance. In most cases, the terms of cooperation between the two legal entities fixed by the corresponding agreement. The concept is often used in the provision of financial services. individuals, for example, on credit card statements. This is not a mistake, but most often the term refers to large sums of money and the interaction of individuals at the international level or in the field of big business.
Tranche (tranche) in French means a part or share of securities, bonds, the issue of which occurs to improve market conditions.
Due to the specifics of the use of this financial instrument the scope of its application can be conditionally delimited as follows:
- Investing and the securities market.
- Lending to organizations in banks.
- Providing countries with IMF tranches.
The understanding of the word "tranche" should be based on the above distinctions and ways of providing financial assistance. What are investment tranches? securities (CB) with the same conditions, regardless of when part of the total issue will be used. That is, a part of the Central Bank is provided gradually, when the terms of the transaction by the borrower have been fulfilled in terms of payment for the first issue.
What are tranches in lending? The bank sets a limit for the issuance of funds for the borrowing organization (line of credit), and within the framework of this limit, gives him the necessary amounts. In this case, the borrowing organization has the right to use the new share of the loan on demand, if all obligations to pay the debt have been fulfilled after the first tranche.
They are comparable to a line of credit for organizations, with the exception of the terms of their provision. As a rule, the IMF puts forward certain requirements, if not met, the country may be left without funding. IMF requirements can be political and economic in nature.
Credit tranche and conditions for its provision
Tranche described above. The term "line of credit" is often encountered, which is identical to the above name. Within the framework of the agreement between the bank and the borrower, all conditions of repayment and provision of a credit line have been agreed. The focus of this document is on the issue limit. It is impossible to exceed the calculated limit under the tranche agreement. On the other hand, the bank may impose additional interest on the unused balance of part of the credit funds (about 0.5% per year, depending on many factors). Thus, the bank encourages the borrower to make full use of the loan provided.
The conditions under which the loan tranche is issued are listed below.
- Refunds in accordance with the payment schedule.
- Accrual of interest for use credit funds.
- The solvency of the company or additional security for the loan in the form of the borrower's own profitable assets.
Lending tranches
What is the provision of a tranche in the conditions of one It is quite easy to understand this issue, if you do not forget the meaning of the word tranche. Let's remind, from French it is translated as "part". Accordingly, the provision of a tranche is the issuance of a share of funds within the established limit for the borrower.
Each tranche can be provided both at the request of the borrower during the period of the contract, and within a clearly established time frame. All the nuances of the transaction are spelled out in the loan agreement. The borrower is obliged to fulfill his obligations on time and in full. And the lender, in turn, is to provide a tranche at the request of the borrowing organization.
Benefits of a credit line
Unlike the issuance of a standard loan by a bank, it is more attractive for both borrowers and financial institutions. The main advantages of tranching under the credit line are as follows.
- Unlimited number of trenches. Repeated use of credit funds. A credit line can be revolving with a specific disbursement limit and not revolving. With the second option of the loan, the organization can use several tranches, but their total amount cannot exceed the established limit. If the line of credit is revolving, then upon repayment of the tranche taken, the borrower can use it again. For example, the limit on a revolving credit line is $ 1,000,000. The borrower claimed the first tranche of $ 300,000, paid it out during the contract period (2 months), which means that he can use $ 1,000,000 as much as possible again. And in the case of a non-revolving line of credit, the next loan limit for him would be only $ 700,000.
- Interest for using the tranche may be charged different ways- can be standard, that is, fixed regardless of the provided part of the limit for the entire duration of the contract. Or they may have specific conditions of accruals. The bank can offer the borrower different terms of interest accrual for each tranche. In any case, interest is charged only on the amount spent (tranche).
- Debt cancellation occurs automatically when funds are received to the organization's current account, which is very convenient, as it saves time.
The market economy is not complete without frequently used economic terms... One of these is the tranche. Many are wondering what the word "tranche" means. This word comes from the European state - France. Translated into Russian, it means part, hunk, piece, share.
Deciphering the concept
The tranche of money is a fraction of the loan that is given to different conditions some time later. Moreover, the period of issue is within the term of the contract.
To answer questions about the tranche, what is it in simple words, it is necessary to make a start from the concept of "the amount of funds". Let's imagine that this amount is issued by a certain part of the money, a loan, a payment. This will be the trench. This term also means the following:
- separate parts of the loan amount;
- share of the bonded loan, issued in stages;
- the volume of securities differing in the level of risk and final income is issued in one period;
- banknotes of equal denomination, which are issued at different times.
Thus, we can say that it is a financial instrument. If a large amount of funds is supposed to be issued, then the initial amount of funds is issued after the conclusion of the contract. The rest of the share in the form of a tranche is received after the fulfillment of the conditions for the provision of the first part of the money. The following parts are awarded upon meeting the conditions for granting the previous parts. This tool is used in the following financial areas:
- the securities market, where the initial filing of securities in huge shares is expected;
- the sphere related to the activities of international financial institutions that provide loans to states;
- banks that lend to various companies.
Tranche provision
What is a tranche when there is a specific disbursement agreement? The provision of equity volume implies the issuance of securities that are bound by an agreement or contract, but differ in the likelihood of depreciation, the maturity date, the date of payment and other conditions. Resource allocation can have different terms requests lasting several months or several years. All the conditions for the provision are prescribed in the concluded agreement.
Loan tranche
Usually, loans are issued by banks in a lump sum and are expected to be repaid within a certain period. But there are situations when a large organization is credited. In this case, the risk to the lender increases. Therefore, a financial instrument such as a tranche is used.
To answer the question of what a loan tranche is, first you need to understand the concept of a credit line. This line implies the issuance of credit funds in certain installments. Moreover, subsequent shares are issued in a certain period after the fulfillment of the requirements of the agreement. The credit line is aimed at replenishing the working capital of the organization, which finance current activities. How this line works:
- with the timely repayment of the debt, the borrower receives the next part of the resources;
- exceeding the limit is unacceptable;
- it is possible to accrue interest for unused funds;
- the amount of the credit line is set individually after analyzing the company's balance sheet.
Tranche provision by Alfa-Bank: in statement on credit card an operation to provide a tranche means that Alfa-Bank has provided you with a loan for the amount spent on a credit card for settlement period and these funds were registered
There are two types of credit lines:
- Renewable - they imply a debt limit, namely, funds are provided to the borrower multiple times, subject to full or partial repayment of the debt.
- Non-renewable - they imply an issuance limit, that is, borrowed funds can be applied once, even if the debt is fully repaid.
Thus, in the field of lending, the cash tranche is a part of the loan funds issued to the borrower when fulfilling the obligations specified in the loan agreement.
Tranche and credit card
Credit cards involve the use of borrowed funds when needed. There is a certain limit on the card, suggesting the amount of funds that the cardholder can dispose of. The credit card tranche corresponds to dividing the limit into separate shares that the cardholder can spend.
This type of cards is usually used by various manufacturing and trade enterprises. When applying the method of issuing funds in shares on a credit card, the goal is to periodically increase the working capital. At the same time, there is a control over the expenditure of funds by the limitation method during expenditure transactions.
The bank provides such credit parts on cards automatically. This happens after the conclusion of the agreement, which will spell out the terms and conditions for the issuance of the tranche.
Benefits of trenches for consumers
When looking for an answer to the question of what a tranche of money is, it turns out that this is a receipt of the amount of funds, subject to agreement on the terms of provision. The advantages of this financial instrument include:
- simplification of the process of issuing funds;
- accrual of interest on actually issued funds;
- magnitude interest rate constant throughout the duration of the contract.
The use of the tranche in the economy allows many organizations to stimulate to improve their performance.
The values of many economic and financial terms that appeared in the Russian language with the development market relations, for many Russians still remain incomprehensible. One of these concepts, which came to us from France, is "tranche". Let's try to figure out what this word means and in what cases it is customary to use it.
The term "tranche" literally means "share, part, piece" (from the French term tranche). This word has several meanings, but they all have financial basis... Generally speaking, the tranche is part cash flow... In a narrower sense, this term can mean:
- credit resources provided to the borrower in separate parts;
- a certain share of a bonded loan, which is issued in several stages;
- securities issued at the same time, but with different levels of risk and profitability;
- emission banknotes of the same dignity, carried out in different years.
Having received an answer to the question of what tranches are, you should find out what their specificity is.
Features of the provision of credit tranches
Traditionally, loans are issued to borrowers for a certain period at a time. However, customers are increasingly choosing to take cash in parts, choosing from numerous banking programs, a loan in the form of a line of credit.
What is a loan tranche? The answer to this question can be found by clarifying the meaning of the term "line of credit". This type of loan is now very popular among legal entities and small businesses.
This type of financial resources differs from classic loans in that the funds are provided to the borrower not in one amount, but in separate parts (so-called tranches) within the framework of the existing loan.
A credit line is opened for the purpose of replenishing working capital - for financing current activities... Enterprises have the opportunity to spend money for the purposes specified in the agreement, and return it within a specified period within the limit.
The loan agreement in the form of a line of credit contains the following points:
- approved limit;
- type of credit line;
- loan term (usually no more than 2 years);
- the size of the commission for the provision of a credit line;
- conditions of provision.
Specific conditions for the issuance of monetary resources are indicated for each tranche separately. Here are reflected such points as:
- tranche amount;
- the size of the interest rate for the use of borrowed funds;
- the duration of the tranche (maturity);
- the ability to repay the loan ahead of schedule;
- conditions targeted use credit resources.
The main types of loans in the form of a line of credit
What is a loan tranche? What type of credit line will be convenient and profitable for you? The answers to these questions can be obtained now.
A loan tranche is a part of it issued to the borrower under one agreement (within the existing credit line). Allocate:
- Revolving lines of credit, that is, with a debt limit, are loans that, according to the current agreement, allow the borrower to use funds many times. The main condition for receiving the next tranche is full or partial repayment of the current debt.
- Non-revolving credit lines, that is, with an issuance limit, enable business representatives to use borrowed funds only once. Having selected the entire set limit, the borrower will no longer be able to receive financial assistance from the bank, even if full repayment credit.
What are tranches and what are their advantages for lending? Let's try to figure it out.
Main customer benefits
Answering the question of what the provision of a tranche is and why it is necessary, several points should be highlighted:
- The process of issuing a loan is greatly simplified: the collection of a package of documents and the signing of an agreement are made once.
- During all the deadline lending interest will accrue only on the amount reflected in the client's loan account, that is, on the actually issued loan.
- The interest rate established as a result of consideration of the application will be valid throughout the entire crediting period. This means that all subsequent tranches will be issued at the same rate.
Where should you start applying for a credit line?
The process of obtaining such a loan begins with submitting an application to the desired banking institution. After writing the application, the borrower receives a list of documents that the bank will need to check its reliability. Employees of credit institutions analyze and find out the following points:
- whether it is advisable to issue a loan;
- does it allow financial condition the borrower to pay off the issued loan;
- what property the applicant can provide as collateral.
Having made an assessment of the liquidity of the collateral and complete economic analysis activities of the enterprise (or individual entrepreneur), the bank makes a decision on the possibility of issuing a loan.
Now, when we already know exactly what tranches are, we can make a decision about the necessity and profitability of a loan in the form of a credit line. The choice is yours!
Many aspiring entrepreneurs who are thinking about developing their business are looking for profitable business lending programs. At this stage, young businessmen are trying to understand what a tranche is and whether it is profitable. This is an economic tool that is effectively applied in specific areas. In particular, on financial exchanges, as well as in lending. Moreover, they are credited as states financial institutions international level, and different companies, banks and other institutions. The process takes place under various conditions: it all depends on the level of lending, as well as the status of the lender.
General Provisions
Some citizens need money for their daily needs, others - for the development of their own business. In all cases, the loan amount is not fixed, and the bank's risks in all situations are different in level. Different in these situations and forms of lending.
One of the ways to reduce the risks of loan default is a loan tranche. Loans can be provided to entrepreneurs in full amount or by credit line. This is, in essence, the same loan that is issued in installments. But there is one rule: the fulfillment of all the requirements of the agreement by the client within a certain period.
For example, many are aware of how IMF loans are made. They are not given in full, but in tranches. There are only four of them, they are equal in amount. The condition for the continuation of cooperation of the borrowing country with the IMF is the fulfillment by the country of requirements not only of an economic nature! The policy of the state is closely related to this issue.
Loan tranche reduces the risk of loan default
Credit line
This is an agreement, two parties are involved in it: the borrower and the bank (organization) that lends it. The contract clearly states the obligations of the parties to each other.
The bank, for its part, assumes the obligation to provide funds in the limit of the agreed amount, at the previously designated time intervals, subject to the second party observing all the provisions of the agreement.
This means that if a party to the agreement has assumed obligations under the agreement, received the first tranche, paid off the debt on it in a timely manner, it has the right to count on the next receipt of money from the creditor. But within the line of credit.
What is a line of credit? It turns out that this is a combination financial resources... The borrower has the right to use them during the validity of the loan agreement.
The credit line limit is strictly fixed; the borrower has no right to exceed it.
The bank, for its part, can start accruing interest to the borrower for the fact that, within a certain tranche, the loan funds were not used. This phenomenon can be called a kind of stimulation for the borrower to use funds within the tranche. The amount of funds issued is determined personally: it all depends on the balance of the borrower and the turnover of funds at his enterprise (organization). This includes a production reserve, an analysis of the borrower's activities, and production in progress. And also other sources of working capital creation.
Types of credit lines:
- Renewable. Funds can be provided to the borrower not once, but several times, but subject to full, partial fulfillment of contractual obligations at the existing debt limit.
- Non-renewable. The line assumes an issue limit. Funds are used only once. Even if the borrower has paid off the debt in full.
A tranche is the amount issued as a loan, subject to the borrower's fulfillment of their obligations in relation to the previous amount
Terms of issue
The lending tranche is part of borrowed money... They are issued to the party to the contract if the provisions and obligations specified in it are fulfilled. To receive a loan tranche, the borrower must meet certain conditions, as well as meet banking requirements... For example:
- Refunds to the creditor in full, on time, in accordance with the debt repayment schedule, without delays.
- Issuance of money at interest, prescribed in advance in the contract.
- The borrower must be able to provide financial institution assets. They will serve as security for the commitment.
A loan tranche is a part of the funds. The bank issues them to general conditions loan, but when the borrower fulfills all the obligations assumed. If the borrower has fully, on time, fulfilled what is required under the contract, the lender issues the next part of the money. The tranche can be provided at a specific time or at the request of the borrower. This provision is preliminarily negotiated. For example, if the first tranche was spent, the income was received, the debt was repaid, the borrower has the right to ask the other party to issue a new amount of money, without waiting for the time period specified in the agreement for the issuance of a new amount. The term, circumstances of the issuance of the next portion of money are fixed in the contractual document.
The main content of the loan contract
The loan agreement establishes the conditions:
- the cash limit agreed by the parties;
- revolving credit line;
- lending duration (most often - up to 24 months);
- the amount of remuneration charged for the provision of borrowed funds;
- pledge.
The terms of the tranche are negotiated individually and are written in the contract
For each tranche, the conditions for issuing borrowed funds are indicated on an individual basis. Therefore, the document prescribes certain points, including:
- tranche size;
- its cost;
- debt maturity;
- the possibility of repayment earlier than the specified period;
- terms of use of finance.
Advantages of a credit line
Credit line: what is this instrument, what are its benefits? This tool is needed by both parties: the borrower and the bank (or other lender). Before granting a loan with a one-time provision of a certain amount of money to a borrower, a credit line has special advantages. Among them are:
- The borrower, using the tranche, can use the loan funds many times, but only within the requested amount.
- Credit lines may be renewed subject to certain conditions. In this case, the borrower applies the tranche for the first time, repays it in a timely manner, and then applies for it again, but for an amount limited by the limit. If the line of credit is of a non-renewable form, this implies the possibility of using them once. After that, the borrower has the right to apply only its balance. For example, if a credit line is available to a bank client, it is renewable at 1,000,000, he returned the first tranche of 400,000, then the borrower is entitled to use the amount of 1,000,000 until the end of the contractual relationship. If the credit line is not renewed, then it is logical that the borrower is entitled to use the balance from 1,000,000.
- Favorable% rates on the use of borrowed funds. % cannot be changed. It is not prohibited to accrue them before the end of the loan agreement. For example, by agreement between the parties, the bank has the right to charge different interest rates for a separate tranche transferred to the borrower. % can be accrued in two ways: on the amount of money in the borrower's use or on their balance. This once again encourages borrowers to use the entire tranche amount in full.
- Convenient payment of interest on a loan. The bank that lends to the organization (enterprise, company) has access to the current account on which the borrowed funds are concentrated. The debt is automatically debited as soon as the money is credited to the dedicated account. Debt repayment in this way is convenient for the borrower.
Receipt of a tranche contributes to business development
Tranche receipt procedure
The use of tranches, a revolving credit line, is a very effective economic tool for business and its development. Such a loan is used in many Western countries, including Russia. Obtaining borrowed funds begins with the registration of an appropriate application to a credit institution. After that, the potential borrower specifies the set of documents required by the bank to assess the solvency.
Managers conduct an analysis of the information received from a potential client, which they draw from documents. In particular, loan officers conduct an analysis of the feasibility of issuing borrowed money, the financial analysis the borrower, his reliability, the availability of property, collateral. Having correctly assessed the liquidity of the loan security, a comprehensive economic analysis of the work of the company, individual entrepreneur, the bank makes a decision to issue a loan, or to refuse this action.
