Financial consultation. What are tranches?

The meanings of many economic and financial terms that appeared in Russian with the development of market relations for many Russians are still incomprehensible. One of these concepts that came to us from France is the “tranche”. Let's try to figure out what this word means and in which cases it is customary to use it.

What are tranches?

The term "tranche" in the literal translation means "share, part, piece" (from the French concept of tranche). This word has several meanings, but they all have a financial basis. Generally speaking, the tranche is part of the cash flow. In a narrower sense, this term may mean:

1. credit resources provided to the borrower in separate parts;
2. a certain share of a bonded loan, which is issued in several stages;
3. securities issued at the same time, but having a different level of risk and profitability;
4. issue of banknotes of the same denomination, carried out in different years.

Having received the answer to the question of what tranches are, it is necessary to find out what is their specificity.

Features of the provision of credit tranches

Traditionally, loans are issued to borrowers for a certain period at a time. However, customers increasingly prefer to take money in installments, choosing from numerous banking programs a loan in the form of a credit line.

What is a loan tranche? The answer to this question can be found out by finding out the meaning of the term “credit line”. This type of loan is now very popular among legal entities and small businesses.

This type of financial resources differs from classical loans in that the funds are provided to the borrower not in one amount, but in separate parts (the so-called tranches) within the framework of an existing loan.

A credit line is opened with the purpose of replenishing working capital - to finance current activities. Enterprises have the opportunity to spend money for the purposes specified in the agreement and return it within the prescribed period within the limit.

A loan agreement in the form of a credit line contains the following points:

• approved limit;
• type of credit line;
• loan term (usually no more than 2 years);
• amount of commission for the provision of a credit line;
• terms of security.

The specific conditions for issuing cash resources are indicated for each tranche separately. Items such as:

• tranche amount;
• interest rate for using borrowed funds;
• tranche duration (maturity);
• the ability to repay a loan ahead of schedule;
• conditions for the targeted use of credit resources.

The main types of loans in the form of credit line

What is a loan tranche? What kind of line of credit will be convenient and profitable for you? The answers to these questions can be obtained now.

A loan tranche is a part of it that is issued to the borrower under one agreement (within the existing credit line). Allocate:

1. Revolving credit lines, i.e. with a debt limit, are loans that, according to the current agreement, allow the borrower to use the funds repeatedly. The main condition for receiving the next tranche is the full or partial repayment of the current debt.
2. Non-revolving credit lines, that is, with a lending limit - give business representatives the opportunity to use borrowed funds only once. Having chosen the entire established limit, the borrower will no longer be able to receive financial assistance from the bank, even if the loan is fully repaid.

What are tranches and what are their advantages when lending? Let's try to figure it out.

Customer Benefits

When answering the question about what the provision of a tranche is and why it is necessary, several points should be highlighted:

1. The process of issuing a loan is greatly simplified: the collection of documents and the signing of an agreement are made once.
2. During the entire specified loan term, interest will be accrued only on the amount reflected in the client’s loan account, that is, on the actually issued loan.
3. The interest rate established as a result of consideration of the application will be valid throughout the entire lending period. And this means that all subsequent tranches will be issued at the same rate.

Where should I start a credit line?

The process of obtaining such a loan begins with filing an application with the right banking institution. After writing the application, the borrower receives a list of documents that the bank will need to verify its reliability. Employees of lending institutions analyze and find out the following points:

• whether lending is appropriate;
• whether the financial condition of the borrower allows you to pay on the loan issued;
• what property the applicant can provide as collateral.

Having assessed the liquidity of the collateral and a full economic analysis of the enterprise (or IP), the bank makes a decision on the possibility of issuing a loan.

Now that we already know exactly what tranches are, we can decide on the necessity and profitability of obtaining a loan in the form of a credit line. The choice is yours!