Committed Facility Explained: Types, Benefits, and 2025 Pricing Insights

Julia Kagan is a financial and consumer journalist with extensive experience as a senior editor in personal finance at Investopedia.

What Is a Committed Facility?

A committed facility is a formal credit agreement where the lending institution guarantees a loan under clearly defined terms and conditions to the borrowing company. This type of facility ensures that the lender is obligated to provide funds, provided the borrower meets specific criteria outlined in the contract.

Think of it as a binding agreement between lender and borrower, contrasting with non-binding arrangements where the lender has discretion over fund disbursement.

Key Highlights

• A committed facility guarantees loan availability to the borrower under agreed terms.
• Borrowers must fulfill specific conditions to access the funds.
• Common types include term loans and revolving credit facilities.
• Uncommitted facilities differ as lenders are not obligated to provide funds upon request, such as with bank guarantees.

How Does a Committed Facility Work?

Committed and uncommitted facilities define the terms and conditions for capital funding over short or long durations. With a committed facility, once the loan agreement is finalized, the lender must provide funds upon the borrower's request. In exchange, the borrower pays a commitment fee on undrawn amounts, calculated as a percentage over time.

The bank agrees to lend up to a set limit for a specific period at an agreed interest rate. Although strict conditions govern fund usage, this arrangement provides borrowers with assured financing throughout the term.

Types of Committed Facilities

Borrowers typically access committed facilities through two primary types: term loans and revolving credit facilities.

Term Loans

Term loans allow borrowers to receive a lump sum for a fixed period, usually up to five years. Repayments follow a predetermined schedule, with options for early repayment. However, repaid amounts cannot be re-borrowed. This setup enables borrowers to manage borrowing amounts and control interest expenses effectively.

Revolving Credit Facilities

Revolving credit facilities provide a maximum loan amount over a set period, with the flexibility to borrow, repay, and re-borrow funds as needed. Borrowers can draw down tranches up to the credit limit at any time during the term.

Interest rates can often be fixed for selected periods for each advance, offering further financial control.

Important Considerations

Borrowers should be aware that revolving credit may involve higher commitment fees and restrictions on minimum or maximum withdrawal amounts per transaction.

Committed Facility vs. Uncommitted Facility

Unlike committed facilities, uncommitted facilities do not obligate lenders to provide funds upon borrower request. These are typically used for short-term financing needs and include options such as overdrafts, futures markets, and bank guarantees.

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