What is a 'Facility'

A facility is a formal financial assistance program offered by a lending institution to help a company that requires operating capital. Types of facilities include overdraft services, deferred payment plans, lines of credit, revolving credit, term loans, letters of credit and swingline loans. A facility is essentially another name for a loan taken out by a company.

BREAKING DOWN 'Facility'

A facility is an agreement between a corporation and a public or private lender used for short-term borrowing. The loan is for a set amount and does not require collateral. The borrower makes monthly or quarterly payments, with interest, until the debt is paid in full. A facility is especially important for companies that want to avoid things such as laying off workers, slowing growth, or closing down during seasonal sales cycles when revenue is low. For example, if a jewelry store is low on cash in December, when sales are down, the owner can request a $2 million facility from a bank, which is paid back in July when business is booming. The jeweler uses the funds to continue operations, and pays back the loan in monthly installments by the agreed-upon date.

The following are various types of facilities.

Overdraft Services

Overdraft services provide a loan to a company when its cash account is empty. The lender charges interest and fees on the borrowed money. Overdraft services cost less than loans, are quickly completed, and do not include penalties for an early payoff.

Business Lines of Credit

An unsecured business line of credit gives corporations access to cash as needed at a competitive rate, with flexible payment choices. A traditional line of credit provides check-writing privileges, requires an annual review, and can be called early by the lender. A non-traditional line of credit provides business credit cards with quick access to cash and a high credit limit. Revolving credit has a specific limit and no set monthly payments, yet interest accrues and is capitalized.

Term Loans

A term loan is a commercial loan with a set interest rate and maturity date. A company typically uses the money to finance a large company investment or acquisition. Intermediate-term loans are under three years and are repaid monthly, possibly with balloon payments. Long-term loans can be up to 20 years and are backed by collateral.

Letters of Credit

Domestic and international trade companies use a letter of credit to facilitate transactions and payments. A financial institution assures payment and completion of obligations between the applicant, or buyer, and the beneficiary, or seller.

RELATED TERMS
  1. Credit Facility

    A type of loan made in a business or corporate finance context. ...
  2. Revolving Loan Facility

    A financial institution that allows the borrower to obtain a ...
  3. Closed-End Credit

    A loan or extension of credit in which the proceeds are dispersed ...
  4. Swingline Loan

    A loan that grants institutions access to large amounts of cash ...
  5. Loan

    The act of giving money, property or other material goods to ...
  6. Loan Commitment

    A loan amount that may be drawn down, or is due to be contractually ...
Related Articles
  1. Small Business

    How Does a Credit Facility Work?

    A credit facility is a loan or collection of loans a business or corporation takes to generate capital over an extended period of time.
  2. Small Business

    Small Business Loan Vs Line of Credit: How They Differ

    Understand the differences between a small business loan and a line of credit, and learn some of the most appropriate uses for each form of financing.
  3. Personal Finance

    The Basics Of Lines Of Credit

    Lines of credit are potentially useful hybrids of credit cards and normal loans. Learn how a line of credit can help (and hurt) your finances, and how to find the best one to suit your needs. ...
  4. Personal Finance

    How To Apply For a Personal Loan

    Learn about different avenues for applying for a personal loan, and learn valuable tips to help you get your personal loan application approved.
  5. Investing

    Revolving Credit vs. Line of Credit

    Revolving credit and a line of credit are arrangements made between a lending institution and a business or individual.
  6. Personal Finance

    Different Needs, Different Loans

    Find out what options are available when it comes to borrowing money.
  7. Personal Finance

    8 Quick-Cash Alternatives To Credit Card Advances

    Sometimes you can find a better deal than a cash advance – but some alternatives are even more pricey. Where to find the cheapest source of quick cash.
  8. Investing

    Using Home Equity Loans For Debt Consolidation

    A home equity loan or line of credit is a convenient way to consolidate debts, cut your interest rate and gain a tax deduction. But there are big risks.
  9. Managing Wealth

    Good Credit? Try This Credit Card Alternative

    Personal loans are a credit card alternative to try if you've got great credit and you want to lock in a lower interest rate on what you borrow. [underlined word is credit card alternative]
  10. Personal Finance

    Personal Loans vs. Car Loans

    How to tell whether a personal loan or a car loan is better for you.
RELATED FAQS
  1. What is the difference between a loan and a line of credit?

    Learn to differentiate between lines of credit and standard loans, and determine when you are likely to use each method of ... Read Answer >>
  2. What are the differences between revolving credit and installment credit?

    Discover how to distinguish between installment credit loans and revolving credit loans, and learn how they affect your credit ... Read Answer >>
  3. What are the differences between revolving credit and a line of credit?

    Understand how to differentiate between a line of credit and a revolving credit account, and find out why business owners ... Read Answer >>
  4. What are some good alternatives to taking out a line of credit?

    Read more about how opening a line of credit might not be the best answer for you and determine available alternatives if ... Read Answer >>
  5. What are the typical requirements to qualify for closed end credit?

    Learn what closed-end credit is, and the various requirements that borrowers must meet in order to obtain a closed-end credit ... Read Answer >>
  6. What are some examples of good situations in which to use revolving credit?

    Learn how to use revolving credit responsibly, and find out how to avoid major credit problems with your revolving credit ... Read Answer >>
Hot Definitions
  1. Federal Direct Loan Program

    A program that provides low-interest loans to postsecondary students and their parents. The William D. Ford Federal Direct ...
  2. Cash Flow

    The net amount of cash and cash-equivalents moving into and out of a business. Positive cash flow indicates that a company's ...
  3. PLUS Loan

    A low-cost student loan offered to parents of students currently enrolled in post-secondary education. With a PLUS Loan, ...
  4. Graduate Record Examination - GRE

    A standardized exam used to measure one's aptitude for abstract thinking in the areas of analytical writing, mathematics ...
  5. Graduate Management Admission Test - GMAT

    A standardized test intended to measure a test taker's aptitude in mathematics and the English language. The GMAT is most ...
  6. Magna Cum Laude

    An academic level of distinction used by educational institutions to signify an academic degree which was received "with ...
Trading Center