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Simple English definitions for legal terms
credit facility
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A quick definition of credit facility:
A credit facility is like a special loan that a business can use whenever they need money. They don't have to keep applying for a new loan every time they need more money. It's kind of like having a credit card for a business. They can borrow up to a certain amount and pay it back over time. There are different types of credit facilities, but they are only for businesses, not for regular people.
A more thorough explanation:
A credit facility is a type of loan that allows a borrower to access funds on an ongoing basis over a period of time, without having to apply for a new loan each time they need money. It is similar to a credit card, where the borrower can access a certain amount of credit and borrow as needed.
Credit facilities are typically used in a business or corporate finance context. There are different types of credit facilities, including:
- Committed credit facilities: A lender agrees to provide a specific amount of credit to a borrower for a set period of time.
- Uncommitted credit facilities: A lender agrees to provide credit to a borrower, but the borrower is not obligated to use it.
- Revolving credit facilities: A lender agrees to provide a certain amount of credit to a borrower, which can be used and repaid repeatedly over a set period of time.
For example, a company may obtain a revolving credit facility of $1 million from a bank. The company can then borrow up to $1 million as needed, and repay the borrowed amount over time. As long as the company does not exceed the $1 million limit, it can continue to borrow and repay funds as needed.
Credit facilities can be a useful tool for businesses that need access to funds on an ongoing basis, without having to go through the process of applying for a new loan each time they need money.