General purpose loan / Non-purpose loan
A non-purpose loan is a loan whose loan purpose can be almost anything.
Key related topics
Revolving credit / Rechargeable credit Loan redemption / Credit redemption CreditThe credit agreement of the non-purpose loan basically does not contain any restrictions on what the borrower can use the loan for.
In terms of its use, this loan is therefore much more flexible than those loans where the purpose of the credit is fixed. Of course, flexibility always comes at a price. In this case, the borrower pays this price in the form of a higher interest rate, a smaller loan amount, possibly a shorter term, or even more collateral.
However, it must also be seen that free usability can easily become a trap. The flexibility of a non-purpose loan easily covers the risks resulting from choosing an inappropriate term, for example. At first, it may seem like a good idea to finance an investment from a one-year overdraft - it is feasible, since the money is available. The only question in such a situation is what happens at the end of the year, when the current account line of credit expires, but the investment has not yet paid off, by definition.
It is therefore important to manage the non-purpose loans in the right place in a company's financing portfolio. Whenever possible, it is worth choosing a loan that really serves the purpose for which the business wants to use it. At the same time, as a kind of security reserve, it is worthwhile to have a free credit line, which can be used to ensure unpredictable or fluctuating liquidity in the course of day-to-day operations.
Last edited: March 15, 2023