Bank credit line (fido bancario) or trade credit line? The difference, and how a bank credit line works

In brief: the word “fido” means two completely different things depending on the context. A bank credit line (fido bancario) is a credit facility (apertura di credito) that a bank grants to a customer (a person or a company), governed by articles 1842-1845 of the Civil Code (Codice Civile): the bank makes a sum of money available for a certain period. A trade credit line (fido commerciale), on the other hand, is the payment deferral that a company grants to another company that is its customer — no bank involved, no credit facility agreement: only a longer payment term agreed between two businesses. If you came here looking for information on the fido you grant (or receive) as a company towards a customer or supplier, that is your case: go straight to the guide on the trade credit line. If instead you are interested in the bank credit line in the strict sense, keep reading.

The difference between a trade credit line and a bank credit line

The two concepts share only the word, not the legal nature:

• Bank credit line: a credit facility agreement (apertura di credito) between a bank and a customer (art. 1842 c.c.). The bank undertakes to keep a sum of money available to the customer for a given period or for an indefinite term. It is a regulated financial relationship, with a specific contract, an interest rate and commissions.
• Trade credit line: no credit facility agreement and no bank. It is the payment deferral that a supplier company grants to a customer company — for example “payment at 60 days” instead of at sight — together with a maximum exposure ceiling that the supplier is willing to accept on that customer before stopping supplies. It is decided internally, not through a banking contract.

Anyone searching “trade credit line” on Google and seeing questions about the bank credit line among the suggestions is probably running into an ambiguity of the term, not an error in their search: the two things are not mutually exclusive (a company can have both a bank overdraft facility and trade credit lines granted to its customers), but they answer different needs.

Difference between a loan and a bank credit line

Here too the difference lies in the structure of the relationship, not only in the name:

• Loan (mortgage or financing): the bank immediately pays out the entire agreed sum, which the customer repays according to a repayment plan with fixed instalments (principal plus interest) and a maturity defined from the start.
• Bank credit line (credit facility): the bank does not pay out a fixed sum in one go, but makes available a ceiling that the customer can use, repay and reuse several times during the term of the contract, according to its needs (art. 1843 c.c.) — unless the contract provides otherwise. Interest is paid only on the part of the ceiling actually used, not on the entire amount made available.

What a bank credit line is and how it works

The most common bank credit line for a company or a private individual is the credit facility on a current account (apertura di credito in conto corrente): the bank authorises the account holder to withdraw beyond the available balance, up to an agreed limit. Before granting it, the bank assesses the economic and financial situation of the applicant — financial statements, account movements, any reports in the Centrale Rischi (Italian central credit register) — and decides whether to grant the credit line, for what amount and on what conditions. Once active, the customer may use it and repay it freely within the limit, unless the contract provides otherwise (art. 1843 c.c.).

How much a bank credit line costs

There is no standard cost, not even for a specific amount such as €20,000: the cost of a bank credit line depends on several items that vary from bank to bank and from customer to customer, for example:

• the interest rate applied only to the part actually used (not to the entire ceiling);
• any commissions on the availability of funds (often indicated as CDF), calculated on the amount of the facility granted regardless of use — the banking transparency rules of the Banca d'Italia require it to be published in the contract's information sheet, with a maximum quarterly ceiling on this type of commission set by law;
• any arrangement fees, account-keeping fees and other ancillary charges stated in the information sheet.

The reliable answer to “how much does it cost” is not an average figure, but the information sheet (foglio informativo) that every bank must provide before signing, under the Banca d'Italia rules on transparency of banking operations and services: that is where the rate, commissions and every other charge are listed for that specific product, and only by comparing the information sheets of different banks do you get a concrete answer for an amount such as €20,000.

How the money of the credit line is repaid

Unlike a loan, a bank credit line on a current account has no fixed instalments: the amount used is gradually restored as the account is funded by receipts (collections, incoming transfers), and becomes available again for a new use — this is the “revolving” mechanism provided for by art. 1843 c.c. Interest accrued on the amount used is debited periodically according to the contractual conditions, typically shown in the account statement. The exact calculation and debit methods are defined by the contract and by each bank's information sheet, not by a single rule valid for all credit lines.

What is the maximum limit of a bank credit line

There is no maximum ceiling set by law for the amount of a bank credit line: the limit is decided by the bank on the basis of its assessment of the creditworthiness of the applicant (income or turnover, assets, history in the Centrale Rischi, guarantees offered) and is negotiated case by case. A “guaranteed” credit line — backed by a real or personal guarantee, as provided for by art. 1844 c.c. — can normally obtain different conditions and amounts compared with a credit line without guarantees, but here too there is no figure valid in general: it depends on the policy of the individual bank and on the customer's profile.

When it is worth asking for a bank credit line

The bank credit line on a current account is designed to cover temporary and recurring liquidity needs — for example a mismatch between the moment a company pays its suppliers and the moment it collects from its customers — not to finance a long-term investment, for which other tools exist (mortgages, leasing, instalment financing), generally cheaper for the same amount, because the cost of the credit line is paid also merely for the availability of the ceiling, in addition to its use. Whether it is worth it depends on the frequency and predictability of the liquidity need, and should be compared — with the information sheet at hand — with the alternatives available at your own bank.

How long a credit line can last, and how long it takes to obtain it

A credit facility can be for a fixed term or an indefinite term (art. 1842 c.c.); in the first case the duration is the one agreed in the contract, often renewable on request and following a new assessment by the bank. The times to obtain a credit line — from the request to the resolution — depend on the assessment procedure of the individual bank (documentation required, times for evaluating creditworthiness) and there is no verifiable average figure valid for all institutions: those who need a certain timeframe must ask their bank directly, which is required to state the conditions in the information sheet and in the contract.

When the bank withdraws (revokes) the credit line

If the credit line has a fixed term, the bank may not withdraw before expiry except for just cause provided by the contract or by law (art. 1845 c.c.); if it is open-ended, either party may withdraw by giving notice, except in the case of just cause. In both cases, the bank's withdrawal immediately suspends the possibility of using the credit line, but the law nevertheless requires a minimum period of fifteen days to repay the sums already used and the interest accrued (art. 1845 c.c.), a period that the contract can only extend, not shorten. The causes that a bank considers “just cause” for revocation (for example reports of anomalies in the Centrale Rischi, worsening creditworthiness) are typically stated in the contract: it is worth reading them before signing, not only when the revocation arrives.

And if you were looking for the trade credit line instead (between companies)

If your real need is not a relationship with a bank, but deciding how much credit to grant — or how much you are receiving from — another company you work with (how much credit line to give a customer, how to protect yourself on a payment at 90 days, what to do if a customer starts paying late), the subject is the trade credit line, covered in the complete guide to managing trade credit lines and B2B customer payment deferrals. Veryfy is not connected to the bank credit line — we do not offer a product on this topic — but it is exactly the tool designed for the trade credit line: it checks the public data of a customer company to decide how much payment deferral it can safely be granted.