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Types of credit facilities
What is a fund-based credit facility?
A fund-based credit facility involves actual outflow of funds from the bank, such as term loans, cash credit, and overdrafts, where the bank directly disburses money to the borrower.
What is a Standby Letter of Credit (SBLC)?
A contingency guarantee issued by a bank on behalf of a client.
What is a non-fund-based credit facility?
A non-fund-based facility does not involve immediate outflow of funds; instead, the bank provides a contingent commitment such as a Letter of Credit or Bank Guarantee on behalf of the borrower.
What is the primary purpose of a Revolving Letter of Credit?
It reinstates automatically after each drawing up to the original limit.
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