The USD loan is a special type of loan, which is practically an intermediate element of credit and the capital market. It is a different term for the USD money market loan, which can be used not only in USD, but also in other currencies.
The main feature of the USD loan is that it can be used as a sole proprietorship on particularly fair terms. Basically, as a retail company, it is possible to get a loan of this kind without much effort, which is very important, since the changes to Basel II will mean that weaker capital companies will be less likely to receive debt in the form of a loan in the future. With USD credit, however, companies have the option of obtaining borrowed capital due to its special features and sufficient creditworthiness.
Up to now, the overdraft facility was considered the typical loan for smaller companies because it was also very easy to obtain. However, the conditions with which the USD loan comes about are even more advantageous than those of the overdraft facility, which, compared to other loans, generally gives rise to high interest rates due to its status as a toleration loan. Therefore, many people rely on these as corporate loans.
USD credit and Basel II
Basel II is a capital requirement that was created by the Basel Committee on Banking Supervision in order to secure bank deposits for customers of banks. Banks must therefore have a certain equity ratio that must not be undercut. This means that banks are less happy to lend to companies or people who are not creditworthy, not even on better terms.
Since the introduction of Basel II in 2004, it has been particularly difficult for private individuals with mediocre income as well as sole traders and medium-sized companies to access debt. There are many ways to still get a loan, such as the USD loan, although it should be noted that this is partly bound by the Basel II guidelines, which relate to borrowing and creditworthiness.
However, special conditions apply to companies due to the uncertain economic situation. Since several banks have USD credit, it is much easier for sole proprietors to take advantage of such external financing if they have sufficient creditworthiness.
USD credit: the main features
The USD loan is characterized by numerous features. On the one hand, it is considered a typical loan for small and medium-sized companies that do not want to take long-term loans but only need capital in the short term. So you can use the USD loan with a maximum term of one year.
Due to the short loan term and the associated higher repayment rates per month, many banks are more likely to give USD loans to sole traders than other types of loan for business customers. The loan amount varies between 50,000 and 100,000 USD, depending on the bank and borrower.
However, this also depends on the borrower’s creditworthiness, which is checked as part of a rating using Basel II. The USD loan is always issued by a USDbank that borrows large amounts on the financial market.
The interest rate of the USD loan is generally fixed over the entire term, which means that as a sole proprietorship or corporate customer, you do not take any risk that relates to unexpected interest rate developments. However, the exact interest rates depend on the contractual terms, which in turn represent a characteristic of the USD loan. Because they can be negotiated very flexibly. In addition, it often happens that the USD loan is not borne by one bank, but by several banks, especially for investment amounts of € 50,000 or more.
Forms of USD credit
A distinction is made between different forms of USD credit. These include the fixed rate loan, credit line and standby credit.
- The fixed rate loan comes with a one-time payment and rather short loan terms, usually up to a maximum of 15 years. The interest rate is fixed over the entire credit period and special repayments are generally not possible.
- The credit line is one of the most common forms of USD credit. It therefore comes with a maximum term of one year and usually has no fixed interest rates over the entire period. As a rule, the interest is fixed for four to six months.
- The standby loan is also very common and the last form of USD loan. This form is also called rollover loan. It is characterized by the fact that the terms can be very long, but not necessarily, as well as the interest conditions. The lender and borrower agree that the interest rate level for the loan will always be adjusted to that on the money market. The current interest rate is adjusted every one to 12 months. However, the interest rate level is fixed for the individual periods.
The pros and cons of USD credit
The USD loan comes with some advantages and disadvantages. Above all, the flexible use and contract negotiation are considered to be a plus point of the USD loan for borrowers. The flexibility relates to the term of the contract, interest rate adjustments, repayment and review of the creditworthiness, the latter being guaranteed, but to different degrees. Depending on the type of loan, the borrower also does not take any risk that relates to interest rate developments or the changing interest rate.
In turn, the credit restrictions for financially strong customers are a disadvantage as they have little scope for investment activities on the USDpean financial market during the term. The banks continuously monitor the economy and balance sheet during the credit period.