The Evergreen loan is a short-term loan that is permanently rolled over. A bank might provide an evergreen loan if the company cannot repay the loan without disturbance to its trading operations. Return payment of the loan principal would not be expected so long as the company is going concern. The bank would have to feel self-confident, however, that the company could repay the loan if necessary from the decommissioning of the assets being financed by the loan. Depending on the financial strength of the borrower and the quality of the assets being financed, evergreen loans might be secured or unsecured. The loan may be evergreen where no repayment term is agreed in respect of the capital at the outset of the loan (B. Coyle 2000, s. 47 - 48).
How an Evergreen Loan works
Evergreen loans can take many forms and might be offered through varying types of banking products. It is possible to distinguish the two most common evergreen loan products offered by credit issuers:
- credit cards
- checking account overdraft lines of credit
Evergreen loans can be used by both businesses and consumers. They are a handy type of credit because they revolve, meaning users do not need to reapply for a new loan every time they need money. Evergreen loans provide borrowers with monetary flexibility but require the ability to regularly make minimum monthly payments. Evergreen lending reduces the bank's flexibility to answer to new credit demands from the real sector of the economy because over time an increasing proportion of the bank's resources become assimilated in the original evergreen loans. Higher interest rates increase rather than decrease the number of evergreen loans demanded since higher interest rates involve additional borrowing for their payment. Under these conditions, even solvent borrowers can be relatively secured to interest-rate changes. The transition from the bank and business solvency to insolvency go ahead under inexorably rising real interest rates (T. Killick 2005, s. 314).
Minimum Monthly Payment
Minimum Monthly Payment is the lowest amount a customer can pay on their revolving credit account per month to keep in good standing with the credit card company. The amount of the minimum monthly payment is calculated as a small percentage of the consumer's total credit balance (T. A. Durkin, G. Elliehausen, M. E. Staten, T. J. Zywicki 2014, s. 27 - 28).
Available credit is the untapped portion of credit available for customers on a revolving credit account. N. Orkun Akseli in his literary work describing available credit as the difference between the total credit limit and the amount that has been retained for acquired and interest (N. O. Akseli 2013, s. 4-16).
- Akseli N. O. (2013), Availability of Credit and Secured Transactions in a Time of Crisis, Cambridge University Press
- Coyle B. (2000), Framework for: Credit Risk Management, Global Professional Publishing
- Durkin T.A., Elliehausen G., Staten M. E., Zywicki T.J. (2014), Consumer Credit and the American Economy, Oxford University Press
- Kiarelly Godoy de Araujo D., Barata Ribeiro Blanco Barroso J., Gonzalez R. B. (2017), Loan-to-value policy and housing finance: effects on constrained borrowers, "BIS Working Papers", No. 673
- Killick T. (2005), The Flexible Economy: Causes and Consequences of the Adaptability of National Economies, Routledge
- Pawłowska M. (2015), Changes in the size and structure of the European Union banking sector – the role of competition between banks, "NBP Working Paper ", No. 205
- Shrestha P. K. (2012), Banking Systems, Central Banks and International Reserve Accumulation in East Asian Economies, "Economics, The Open-Access, Open-Assessment E-Journal", No. 48
Author: Patryk Kozioł