A credit facility arrangement is a contract involving a lender and a borrower in which the lender consents to increase credit facilities to the borrower. Put simply, a credit facility is another name for a loan.
A normal consumer loan is fairly easy to understand, a bank gives a loan of say $10,000 to the customer in order for them to build an extension to their house, and the borrower agrees to repay the loan over a number of months, at a set interest rate. The borrower may also have offered the bank some collateral for example a car. However although a credit facility is a loan it is a bit more complicated and detailed. They are more tailored towards big companies such as airlines who use the credit facility to buy a large number of plane at the same time that can cost anything up to a quarter of a billion dollars a plane.
With the personal loan where the customer used their car as collateral, then that customer would not be able to sell that car without notifying the lender of his intentions, and the bank may refuse permission if the customer has no alternative means of collateral. For a credit facility you can swap different types of collateral around giving much more flexibility and freedom. This also gives the lender the advantage of knowing that there is always collateral available should repayments not be made.
Credit facility agreements are very complicated documents and can be very in depth. However their intricacy may be analyzed if on the whole their principle is recognized and the countless loans that make up the credit facility are taking into account on a case by case basis.
A normal consumer loan is fairly easy to understand, a bank gives a loan of say $10,000 to the customer in order for them to build an extension to their house, and the borrower agrees to repay the loan over a number of months, at a set interest rate. The borrower may also have offered the bank some collateral for example a car. However although a credit facility is a loan it is a bit more complicated and detailed. They are more tailored towards big companies such as airlines who use the credit facility to buy a large number of plane at the same time that can cost anything up to a quarter of a billion dollars a plane.
With the personal loan where the customer used their car as collateral, then that customer would not be able to sell that car without notifying the lender of his intentions, and the bank may refuse permission if the customer has no alternative means of collateral. For a credit facility you can swap different types of collateral around giving much more flexibility and freedom. This also gives the lender the advantage of knowing that there is always collateral available should repayments not be made.
Credit facility agreements are very complicated documents and can be very in depth. However their intricacy may be analyzed if on the whole their principle is recognized and the countless loans that make up the credit facility are taking into account on a case by case basis.
RSS Feed