If you have a business and you want to make an important investment or if you are thinking of undertaking yours and have gone to banking entities in search of financing, they will probably have told you about the replacement credits.
Where does this strange name come from? A replacement is nothing more than a repair, so it is normal that these types of loans are granted to workers in the primary (farmers or livestock) and secondary (industrial) sectors to renovate machinery, utensils, facilities or any other important investment that allow them to improve the productivity of their business.
The characteristics of a replacement credit
1. Defined end. The granting of such a loan is conditioned and limited to the purchase of material to develop your professional activity or the rehabilitation of the facilities where you work. Upon request, the entity will ask for your specific investment budgets and will only grant you the amount that appears in those budgets. You are obligated to assign it solely and exclusively to the purpose for which you requested it; If you finally spend less money, do not use it for other purposes not related to your work.
2. The guarantee. The most peculiar characteristic of this type of loans is that the product it finances acts as collateral for it. That is, if you request a replacement loan to buy a tractor, for example, the vehicle is the loan guarantee. If you don’t pay it, the bank could keep your tractor.
3. The applicants. As we have already mentioned, workers in the primary and secondary sectors are the professionals who use this type of loans most frequently. It can also be requested by a company with debts derived from operating expenses, purchases of real estate or machinery less than one year old.
4. The return term. Given that these loans are usually requested for significant capital investments, it is not surprising that entities grant long debt repayment periods. Typically, more than 50% of the amount granted is delivered at first and then a personalized payment schedule of between 5 and 7 years is established, always contemplating periods of lack when our activity is subject to very variable flows, such as good result of a harvest or the ups and downs of the industry.
Are refactional credits a good option?
As in the case of mortgages, micro loans or personal loans, the convenience or not of requesting a replacement credit will depend on our specific situation. Yes we believe that it is convenient to request it if you need to make a significant capital investment and you need extensive return periods, as this product allows it.
If the investments are smaller, such as renovating computer equipment, acquiring fertilizer for a specific crop or undertaking a small reform in your factory, there are products that may be more interesting, such as fast credits or personal loans in which no more guarantee is usually needed. that your salary and that do not put at risk the good you want to acquire or repair.
As we always remember from Good Finance
The most important thing is that you analyze the details of your contract very well and study your long-term economic situation to make sure that you will be able to deal with payments comfortably so that interest and commissions are not Turn into torture.