Revolving Credit and Term Loans as Credit Alternatives to Firms in Mexico: When and for what purpose?
Credit to firms can be classified in two categories: revolving credit lines and term loans. Revolving credit lines offer borrowers the option to draw funds up to a limit, repay and redraw them as they see fit. In term loans, borrowers usually make a single draw of funds and commit to pay a fixed amount periodically. Both types of credit have pros and cons. However, it is not clear what determines whether a firm obtains a revolving credit or a term loan. In particular, two interesting questions arise. First, what is the relationship between the type of credit to firms and the economic cycle? Second, are there any differences between those types of loans in terms of pricing? In a recently released paper, I explore these questions for Mexican firms, using credit level information from Mexico’s National Banking and Securities Commission (CNBV) for the period of 2001-2012.