What Is an Uncommitted Facility? Definition, Purpose, and Example

An uncommitted facility is a type of credit facility that is not fully committed by the lender. This means that the lender is not obligated to provide the full amount of credit that is available under the facility. Instead, the lender will only provide the credit if the borrower meets certain conditions, such as maintaining a certain credit rating or providing collateral.

Uncommitted facilities can be useful for borrowers who need access to credit but do not want to commit to a fixed amount of borrowing. This can be the case for businesses that are growing rapidly or for individuals who are planning a major purchase. Uncommitted facilities can also be used to bridge a gap between when a borrower needs credit and when they are able to obtain a permanent loan.

There are a few different types of uncommitted facilities. One type is a revolving credit facility, which allows the borrower to borrow and repay funds up to a certain limit. Another type is a term loan facility, which provides the borrower with a fixed amount of credit that must be repaid over a specified period of time.

The terms of an uncommitted facility will vary depending on the lender and the borrower. Some of the factors that may affect the terms of the facility include the borrower's creditworthiness, the size of the facility, and the purpose of the borrowing.

Here is an example of an uncommitted facility. A company that is planning to expand its operations needs to borrow $10 million. The company does not want to commit to a fixed amount of borrowing, so it enters into an uncommitted facility with a bank. The facility provides the company with access to up to $10 million in credit. The company can borrow and repay funds up to the limit of the facility as needed. The interest rate on the facility is based on the company's credit rating. The company must also pay a commitment fee to the bank, which is a fee for the bank's commitment to provide credit under the facility.

Uncommitted facilities can be a useful tool for businesses and individuals who need access to credit but do not want to commit to a fixed amount of borrowing. However, it is important to carefully consider the terms of the facility before entering into it.