Facility Services Agreements AKA Credit Facility Agreements - A Flexible Tool For Businesses

A Facility Services Agreement, also known as a Credit Facility Agreement, is an agreement between a lender and borrower in which the lender agrees to extend credit to the borrower. In other words, a credit facility is a loan. And while it may be referred to as a loan or letter of credit, or simply a facility agreement, the term "loan" does not encompass all that a facility services agreement is nor all that it can do. Before one can examine the terms of a facility services agreement aka credit facility agreement, it is important to know what a credit facility is.signs plano tx 

A typical consumer loan is fairly straight-forward: ABC Bank makes a loan of $15, 000 to John Consumer so that he can make improvements to his house. Consumer in turn agrees to pay back the loan over so many months at a specific interest rate and also provides ABC with collateral, such as, perhaps, his car. A credit facility is a loan, only more so. In the first place, credit facilities are big. A single loan may be bigger than any proposed credit facility, but on average, as a class of financial tools, credit facilities are large investment tools. They tend to have a floor of several dozen million dollars and can range into the hundreds of millions and even billions of dollars. Credit facilities are popular with aircraft leasing companies for the purchase of handfuls or dozens of new aircraft at a time, most of which cost between $50 million and $250 million dollars apiece.

Next, facility services agreements can be thought of as collection of loans that allow the borrower much more flexibility than a single loan. Going back to ABC Bank and John Consumer, if Consumer wished to sell his car, he would have to renegotiate his loan with ABC. ABC would not allow Consumer to sell his car, which he is using as collateral, without notifying them and without getting their approval to substitute other acceptable collateral. By contrast, credit facilities allow for the swapping of collateral such that the terms of the credit facility need not be renegotiated every time. This provides the borrower with flexibility and the lender with peace of mind. Similarly, multiple loans collected into one vehicle-the credit facility-allow the borrower to borrow, or draw down, the funds at various times and at various interest rates. The borrower does not need to take all the money at once, nor pay it back all at once.

At the same time, and perhaps a bit confusingly, a credit facility may well be only one tranche of funds, at a specific interest rate, secured by a precise asset as collateral-a loan, in other words. What separates a credit facility from a loan is the notion that a credit facility may be broken up and used much more differently than a loan. Thus, the credit facility has the ability to be a loan, or it has the ability to morph into a collection of loans.