Credit Facility Glossary

credit facility term sheet template

A credit facility term sheet template is a template which is used to detail the terms and conditions associated with a credit facility. This template also serves as the basis to developing detailed legal documents related to commercial loans. A credit facility term sheet template usually includes information about the borrower, the amount to be borrowed, the purpose of borrowing the money, the interest rate, the facility fee, collateral, maturity details, payment details, covenants, guarantor information and reporting requirements.

credit facility press release

A credit facility press release is an official statement announcing new credit facilities that are issued by a bank or lender. This official statement is released to the public via different types of news channels. Such a press release includes detailed information about the new credit facility, its terms and conditions and who can avail such a facility. This press release essentially seeks to notify consumers about the new options that they have when it comes to availing a credit facility.

credit facility example

A credit facility is a special type of commercial loan that is handed out to small businesses and self-employed individuals. There are a number of different types of credit facilities, examples of which include term loans, revolving credit, letters of credit, retail credit accounts and committed facilities, among many others. Such credit facilities can be used by a business for covering short term expenses in the event of a lack of capital. Credit facilities are offered by banks to borrowers, provided that the borrower satisfies certain eligibility criteria.

credit facility amortization

Credit facility amortization refers to a credit facility where part of the principal amount borrowed is paid through equal payments. Payments are made over the lifetime of the credit facility according to a predetermined amortization schedule. As payments are made, the outstanding debt decreases to zero by the end of the lifetime of the credit facility. Amortization of a credit facility improves the health of a business by reducing its debt and increasing its market value. Also, credit facility amortization allows a business to make smaller payments on a periodic basis rather than having to pay a large amount altogether.

credit facility tenor

Credit facility tenor refers to the amount of time that is left for repayment of a credit facility or the time until the financial contract expires. Tenor is most commonly used in non-standardized contracts such as credit facilities. Credit facility tenor is usually indicated in months and it decreases over time, while the maturity of a credit facility remains constant. The risk associated with a credit facility also decreases as the tenor decreases. This is because the longer the time to maturity, the more the chances of something going wrong and repayments being missed.

credit facility private equity

A credit facility private equity is a special revolving credit facility which is offered by banks to private investment funds. It is also known as subscription credit facility for private equity funds. Such credit facilities allow borrowers to arrange for liquidity quickly and efficiently without having to call for capital contributions. In most cases, credit facility private equity is granted to a borrower only if they provide collateral. Subscription credit facilities are most commonly used for short term financing, but they can also be used for long term uses.

credit facility advance rate

Credit facility advance rate refers to the maximum percentage of collateral value that a lender extends for handing out a credit facility. This advance rate allows borrowers to determine what type of collateral to use in order to secure a credit facility. On the other hand, advance rate also minimizes the loss exposure of a lender when they accept collaterals that may fluctuate in value over time. An advance rate enables lenders to create a cushion in a credit facility so as to minimize losses in case of missed payments or fluctuating collateral values.

credit facility letter

A credit facility letter refers to a letter of proposal that a borrower must submit to a lender to avail the credit facility. This letter must be accompanied with various supporting documents related to the business and its owners. A credit facility letter must include detailed information about the borrowers, guarantors (if any), purpose of funds and the amount of funds requested. Many borrowers also choose to highlight the achievements of their business when writing a credit facility letter. This letter helps banks determine why a borrower needs to avail a credit facility.

credit facility covenants

Credit facility covenants are certain rules and conditions that are made between borrowers and lenders of a credit facility. This agreement specifies which activities can or cannot be carried out by the borrower. Credit facility covenants are usually represented in the form of various financial ratios of the borrower. The borrower must maintain certain maximum or minimum limits on these financial ratios depending on the agreement made. In case these covenants are broken by the borrower, the lender has every right to withdraw the credit facility from the borrower.

credit facility drawdown

Credit facility drawdown refers to the gradual accessing of funds from a credit facility. It can mean access to part or all of the line of credit of a credit facility. The terms and conditions regarding drawdowns are predetermined and specified explicitly when a credit facility is handed out to a borrower. Credit facility drawdowns allow borrowers to pay interest only on the amount of money accessed, and not for the entire line of credit. This can result in significant savings for a business, if it does not plan to use funds all at once.

credit facility vs line of credit

Line of credit is an arrangement between a bank and a borrower, which specifies the maximum amount of money that can be accessed by the borrower. When a borrower avails a credit facility, he or she is entitled to a specified line of credit. The borrower can choose to withdraw money from this line of credit up to the maximum amount. When withdrawals are made, the balance in the line of credit decreases and this balance is restored whenever payments are made.

credit facility vs debt facility

Credit facility refers to a special type of commercial loan that is handed out to small businesses and self-employed individuals. On the other hand, debt facility refers to the financial arrangements that provide for different types of loans. Debt facilities form an agreement between lenders and borrowers that are usually used for short term loans. Debt facilities are usually issued in the form of debt securities such as bonds, notes, debentures or other similar instruments. Credit facilities are issued in the form of term loans, revolving credit, letters of credit and other similar instruments.

credit facility revolver

Credit facility revolver is a special type of credit facility where a borrower pays a certain commitment fee to use funds as and when needed. In other words, with a credit facility revolver, borrowers are not subject to a fixed number of payments. This arrangement allows a credit facility to be withdrawn, repaid and redrawn for any number of times. It is a particularly useful option for businesses that experience a lot of fluctuations in cash flows. It is a very flexible and popular financial instrument for small businesses and self-employed individuals.

credit facility accordion

Credit facility accordion is a special type of option which allows borrowers to increase their line of credit. Companies need to purchase this accordion feature from lenders if they anticipate an increase in the need of working capital. This feature proves beneficial to all parties involved in a credit facility agreement. Businesses that purchase the accordion option exhibit immense potential for accelerated growth. Lenders can reduce the risk of missed payments by increasing the line of credit incrementally. Each increment is made only when a business realizes specific predetermined expectations.

credit facility fee

Credit facility fee refers to the charges that a bank imposes on borrowers when they avail a credit facility. This is because banks have to carry out various checks and procedures before they can hand out a loan to a business. Also, there is always a risk associated with missed payments on a credit facility. This fee helps banks ensure that they are handing out a credit facility to a worthy business which is capable of making repayments on time.

credit facility term sheet

A credit facility term sheet is a non-binding agreement which sets forth the terms and conditions of a credit facility. The term sheet formalizes the process by which a business can obtain a credit facility. It also delineates the structure and terms under which banks will be willing to consider a request for a credit facility. Credit facility term sheets are usually prepared well before the full underwriting of a loan request takes place. In essence, a term sheet is nothing but a commitment letter that specifies the terms and structure of a credit facility to borrowers, lenders and guarantors.