Define: Committed Credit Facility

A committed credit facility is a type of loan or credit arrangement provided by a financial institution to a borrower. It involves a predetermined amount of funds that the borrower can access as needed within a specified period.

Unlike an uncommitted credit facility, a committed credit facility provides a legally binding agreement between the lender and borrower. The lender is obligated to provide the funds, while the borrower is committed to using the facility within the agreed terms.

The terms and conditions of a committed credit facility may vary depending on the lender and borrower’s agreement. However, common aspects include the loan amount, interest rate, repayment schedule, and any associated fees or penalties.

In most cases, a committed credit facility can be used for any legitimate business purpose. However, some lenders may impose restrictions or require the borrower to provide a detailed plan outlining the intended use of the funds.

The duration of a committed credit facility is typically agreed upon between the lender and borrower. It can range from a few months to several years, depending on the borrower’s needs and the lender’s willingness to provide the facility.

The borrower usually has the flexibility to access the committed credit facility in multiple drawdowns or installments, as needed. This allows them to manage their cash flow efficiently and only borrow what is required at a given time.

If the borrower fails to repay the committed credit facility as per the agreed terms, they may be subject to penalties, additional interest charges, or legal action by the lender. It is crucial for borrowers to fulfill their repayment obligations to maintain a good credit standing.

In general, the terms of a committed credit facility are legally binding and cannot be unilaterally changed by the lender. However, both parties may agree to modify the terms through a formal amendment process if necessary.

Collateral requirements may vary depending on the lender’s policies and the borrower’s creditworthiness. Some lenders may require collateral, such as real estate or business assets, to secure the committed credit facility. Others may offer unsecured facilities based on the borrower’s financial strength.

A committed credit facility can be terminated before its agreed-upon duration if both parties mutually agree to do so. However, early termination may involve penalties or fees, which should be outlined in the original agreement.