Uncommitted Facility

DEFINITION of 'Uncommitted Facility'

An agreement between a lender and a borrower whereby the lender agrees to make funding available to the borrower, but is under no obligation to provide a specific amount of money. Uncommitted facility loans are generally for a short period of time (i.e., less than one year). This is in contrast to a committed facility that involves clearly defined terms and conditions set forth by the lending institution and imposed upon the borrower.

BREAKING DOWN 'Uncommitted Facility'

Uncommitted facilities are used to finance seasonal or temporary needs, such as paying creditors to earn trade discounts, single (one-off) transactions, meeting payroll obligations and the needs of seasonal businesses with fluctuating revenues. Uncommitted facilities are generally less costly to arrange (compared with committed facilities), because the lender has no obligation to extend the loan; when financing is made available, it is short term and the credit risk will be comparatively small.

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