Multiple Advance Loan
What does it mean
A Multiple Advance Loan is a loan where the borrower is allowed to request multiple advances of the principal of the loan over time.
Why does it matter
Matching the loan design with the item being financed is extremely important. A Multiple Advance loan can be used to finance a project that will be paid for over a period of time. A good example of a situation where a Multiple Advance loan would be appropriate would be a construction loan. By having the loan be a Multiple Advance loan, loan funds are released as the corresponding construction is completed. This is a good thing for both the bank and the borrower. It is a benefit to the bank because it retains control over the loan to make sure the proceeds are spent on their intended purposes, and it is a benefit to the customer because the borrower saves on interest expense because they only pay interest on the funds they use rather than being required to pay interest only the whole loan for the whole time.
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