We explain what a bank loan is and where the borrowed money comes from. Also, the importance of this instrument in the economy.
What is bank credit?
A credit is a financial transaction where one entity grants another an amount of money in an account at its disposal, with the second undertaking to return all the money taken, also paying interest for the use of that amount.
Bank loans They are granted by credit institutions, typically banks through the execution of a contract by which the debt arises.
The concept of credit is often confused with that of a loan, the difference is that in credit the client You have money at your disposal and only pay interest for the amount used, while in the loan, the client receives all the money and pays interest for the entire amount, regardless of how much they actually spend.
The origin of the credit money is in the deposits that others make in the same bank, to which the banking entity pays interest: it is in that difference between the rates offered for deposits and the rates charged for loans where a large part of the banks' business lies.
As is known, banks represent a fundamental decision-making space in all countries of the world, and over time their operation has become more complex. Currently, except in particular economies where access to credit is very easy, the granting of credit It is a vote of confidence by the banking system to an individual or company.
In the case of individuals, one of the most frequent loans are the so-called mortgage loans (for the purchase or construction of houses), or those intended for the acquisition of vehicles or other useful goods for people, whether for work. or for other purposes.
See also: Line of credit
Credits for companies
In the case of organizations (companies, industries, etc.), bank loans logically represent much larger amounts of money which are used to capitalize the organization: it is expected that with this they can buy machines, hire employees or develop a new product that allows them to obtain a profit, even discounting the return of the loan and interest.
In both cases the potential debtor must demonstrate solvency, offering guarantees or providing receipts and proof of their financial statements and results: this is why in the case of companies, many times receiving a loan can mean future growth, in this way they become attractive in other ways, for example, the price of their shares can increase.
Importance of bank credit for the economy
Bank credit is one of the market variables that It has a lot of impact on the economy of the countries. Generally, the Central Bank of a country and the so-called state banks set the interest rate levels to which private credit institutions have to adapt (in cases where it is not directly regulated).
A strong restriction in access to credit, that is, a very high interest rate, which will imply a lot of economic effort to repay it, will surely result in the contraction of sectors such as construction or the automotive or machinery industry, and with it, Unemployment is likely to increase.
However, Access to unlimited credit has its risks since there are many precedents of countries where after a while it became impossible for many creditors to get their money returned, generating a sudden outbreak of mistrust and with it, a resounding drop in investment from one moment to the next. .
However, bank loans continue to be a fundamental instrument for capitalization both individuals and companies. Great undertakings throughout history would not have been possible without the initial kick given through one of these financial instruments.
Credit cooperatives aim to bring these money injections closer to the sectors with fewer possibilities of accessing bank credit, given the rigorous formal requirements that banking institutions usually have. For certain individuals or small and medium-sized businesses, this may be the only viable financing alternative.
