The financial assistance given to Corporates and business establishments to run the show through business loans and the financial assistance given to individuals through retail loans is ACF. The article, at length, will give you information about ACF Full Form and the types of credit facilities available.
ACF Full Form is an Account Credit Facility. A credit facility is funding given by financial institutions to Corporates/Businesses/Individuals for various purposes. The assistance can be either by way of a Term Loan, a defined amount given for an extended period at an interest stipulated at the time of approving the Loan. Revolving credit by way of Overdraft is a credit limit provided that can be utilised as per the customer's requirement. Interest in the case of revolving credit will be charged on the amount utilised and not on the sanctioned limit. The amount utilised will be replenished to the extent of remittance received into the account.
There are a variety of credit facilities designed as per the requirements of the business establishments/individuals. Besides business loans, the retail loans provided to individuals are personal loans, education loans, home loans, vehicle loans etc. The credit policy differs from bank to bank, and the parameters of the schemes vary as per the credit policy.
Various factors affect the decision on a Credit Facility.
Age: In the case of retail loans, age is a crucial factor that affects credit decisions. If you avail of a loan at a very young age, the loan amount will be considerably high as you will be given a longer repayment period.
Income: The income of an individual/Company decides the repayment capacity. So before deciding on the quantum of the Loan, the net income will be reviewed. The higher the income, the higher will be the loan amount.
Credit Score: The credit score reflects the creditworthiness of the applicant. The credit score ranges from 300 to 900. The minimum credit score for a favourable credit decision will be 650 to 750, depending on the credit facility's type.
Credit score again depends on the number of existing loans, type of loans availed, the repayment history, etc. The higher the credit score, the higher the scope for a favourable credit decision. Therefore, it is advisable to manage the credit score at higher levels if you wish to avail of big-ticket loans like Home Loans.
Debt to Income Ratio: The Debt to Income Ratio is arrived at by considering all the existing commitments like payment of utility bills, existing EMIs, provision for any emergencies, etc. The surplus available in your income after providing for the existing commitments will be the EMI you can afford to service the existing Loan. The available, affordable EMI will decide the loan amount.
Transactions in the account: The bank statement will be reviewed for the kind of transactions in your account. Regular credits in your account by way of salary or business receipts will be viewed positively, and there will be a good chance of loan approval.
Repayment History: Even if your credit score is satisfactory and is within the required level, on reviewing the credit report, remarks like ‘settled’ or ‘written off’ are observed, indicating a non-prompt repayment of previous loans. As a result, the bank/financial institutions had to either write off the account or settle for an amount lesser than the outstanding liability. There are all chances of the credit facility being rejected in such cases.
There are various types of ACF Full Form, i.e., Account Credit Facility.
Retail credit is loans provided to retail customers for an extended period for various purposes like the purchasing gadgets, creating an asset, education,nning a wedding, ning a vacation, purchasingicles, etc. The various kinds of retail loans available are:
Personal Loan: This loan is a multipurpose loan that can be used for wedding expenses, medical expenses, planning a vacation, etc.
Education Loan: For the education of the self of children. The Loan could be for pursuing studies either inland or abroad.
Vehicle Loan: For the purchase of a two-wheeler or a four-wheeler.
Home Loan: For the purchase of a house/flat or for the construction of a house. A loan will also be provided for either extension or refurbishing the existing house.
Individuals normally opt for these loans when they are not able to make upfront payments. These loans will be repayable in easy instalments for a specified period which will be a convenient option.
While running a business, funding will be required for several aspects. It could be for purchasing fixed assets like land or capital assets like plants and machinery, or it could be a working capital for operational expenses. Business owners will always be on the lookout for outside funding for these purposes. This is when the financial institutions come into the picture. Various business loans, as given below, will be provided by the banks/other financial institutions.
The term loan will be mainly for creating capital assets, i.e., for the purchase of plants and machinery. These loans will be repayable in easy instalments for a specific period. The period may range from 1 year to 5 years. The amount will be disbursed in a lump sum.
Working Capital Finance
This will be provided for the operational expenses of the business. A credit limit will be sanctioned, and the operations should be within the limit. The amount can be withdrawn as and when required and can be replenished with business receipts that are routed through the account.
Loan Against Property for SME (Small and Medium Enterprises)
The Loan will be provided against the mortgage of residential or commercial property. The funding will be only for business operations. This Loan also will be repayable in instalments for a specific period. The property mortgaged should have a marketable title. The maximum repayment period for the loan will be 20 years.
In most businesses, especially small businesses, there will be a time gap between the invoice raising and the clients making payments. To fill the gap, invoice financing, known as a discounting invoice facility, will be provided. The funding will be against the invoice raised and will be recovered when the payment is received from the clients.
With a clear description of the ACF Full Form and the various loan facilities available for retail customers and the business sectors, you will be able to choose the appropriate loan scheme to suit your requirements. The terms of repayment and interest structure vary from lender to lender. Before applying for any facility, you will have to do thorough research and go for the best deal.
Retail credit is a loan provided for customers with predefined terms and conditions for various purposes like purchasing gadgets, creating an asset, purchase of a vehicle, education, wedding expenses, planning a vacation, medical expenses, etc.
There are different credit types like instalment credit, open credit and revolving credit. The payment structure is different for each of these credit types.
One of the most important features of retail credit is it is volume-driven. The credit is widespread among various retail customers, unlike commercial lending, where huge amounts are concentrated in a single client. There is a risk distribution in retail lending, whereas risk is concentrated in a single client in commercial or corporate lending.
The process involved in retail credit is a thorough appraisal, risk- rating and screening to ensure the creation of quality assets.