Facility

A facility is a formal credit arrangement that defines the terms on which a lender will make funds available to a borrower. It sets out the maximum amount available (the facility limit), the applicable interest rate, repayment schedule, security requirements, and any covenants or conditions.

Facilities can be committed (the lender is obligated to provide the funds once agreed) or uncommitted (the lender can withdraw at their discretion, as with most bank overdrafts). Term loans are typically committed facilities once drawn down. Revolving credit facilities allow flexible drawdown and repayment within the agreed limit.

The facility letter (or facility agreement for larger transactions) is the binding legal document setting out all these terms. It should be read carefully and ideally reviewed by a solicitor before signing, particularly for larger facilities with financial covenants or complex security arrangements.

Related terms