Umbrella loan

About umbrella loans

An umbrella loan, or umbrella credit facility, is a type of loan that provides a customer with a larger credit limit. This limit allows multiple loan contracts to be issued under a single structure.

The purpose of umbrella loans is to simplify the loan contract creation process. Once the umbrella contract is signed and created, individual loan contracts can be created under the umbrella loan limit without through the loan application and offer phases.

Umbrella loan structure

The umbrella loan operates in two levels:

• Umbrella loan contract - Defines the overall credit limit.

• Sub-contracts - Individual contracts that are issued within the umbrella limit.

Umbrella loan contract level

The umbrella loan contract has its own conditions and fees. One of which is an interest on unused limit. This parameter is calculated as the bank is signing a limit contract without any disbursement of principal but have reserved capital for potential disbursement. The interest on unused limit is calculated daily and can be invoiced monthly along with the rest of the loan contract fees.

Umbrella loan contract does not have principal or interest components and does not make disbursements.

Sub-contracts level

The sub-contracts are regular loan contracts that can be created for different loan products. For example, installment loan, revolving or non-revolving credit line contracts. The sub-contracts have their own lifecycle, invoicing and repayment terms. The primary reason for linking the sub-contracts to the umbrella loan contract - is to ensure that the total sub-contract limits do not exceed the overall umbrella limit.

Umbrella loans types

Umbrella loans can be either revolving or non-revolving:

• Revolving - Once the sub-contract is repaid, the repayment amount becomes available again on the umbrella level and can be used for issing new loans.

• Non-revolving - The sub-contract limit can be used once and does not become available again after repayment.