Credit amounts can differ significantly, depending on the purpose of the credit funds. The role of the borrower can act as a physical and legal entity, including the state. There are different risk levels for the lender. In this connection, there is a practice to reduce these risks. One option is to use trenches.
1
A loan at any level can be provided with a one-time total amount prescribed in a loan agreement, or to have a type of credit line in which the total amount is divided into several parts of the so-called tranches. So, Tranche is the share of the loan.
2
The loan agreement contains data on the entire validity period and the total amount of the loan, which is divided into several parts. Credits of the International Monetary Fund, for example, are divided into 4 tranche, i.e. 25% of the total loan amount. The dates and amounts of issuing a particular tranche are prescribed in the loan.
3
The use of tranche in international lending is caused by the need to control the lender for the targeted use of credit funds by the borrower. The first tranche is issued immediately after signing the credit agreement. After the established period of time, the borrower is obliged to provide all the creditor data on the use of borrowed funds. The subsequent tranche is issued if all the conditions for issuing the previous one are fully fulfilled.
4
It is worth noting that the loan form with a gradual issuance of credit funds is applied not only at the international level, any legal and even individual can take advantage of credit.
5
The use of tranche in lending not only reduces risks for the creditor, but also benefits a borrower under certain conditions, because Interest is charged only by actually issued amount, and not on the full amount of the loan. This is very beneficial if the borrower has achieved certain success due to the resulting tranche and does not need additional funds.
Based on the foregoing, it is possible to summarize that the possibility of obtaining the subsequent tranche is entirely depends on the ability of the borrower to achieve the goals specified in the loan agreement.
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