Credit Facilities | How Credit Facilities Work | Benefits of Credit Facilities

Credit facilities are specific types of bank loan you can draw down in increments pending when you need the credit. It is a variety of loans that a company accesses to meet it’s financing demands.

Credit Facilities


Credit facilities come in different forms, some of which are;

Retail Credit Facility: This is a method of financing. This loan, is essentially, a type of loan or line of credit used by retailers and real estate companies. Credit cards are a good example of retail credit facility.

Revolving Loan Facility: This type of loan is issued by a financial institution that offers the borrower with the flexibility to draw down or withdraw, repay, and withdraw again. Most importantly, it is a line of credit with a variable (fluctuating) interest rate.

Committed Facility: This is a source for short- or long-term financing agreements. Here, the creditor is committed to providing a loan to a company – provided the company meets specific requirements set forth by the lending institution. The funds are provided up to a maximum limit for a specified amount of time and at an agreed interest rate. A good example is are term loans of committed facility.

How Credit Facilities Work

The first step, is that the borrower establishes a credit facility by offering an initial property or group of properties collateral. Note that these properties have the potential of being sold or substituted in the future. The borrower on the other hand, may use the cash to recapitalize other assets. Also, the borrower has the option of freeing up cash for additional acquisitions.

Next, the credit facility’s terms and agreements are documented. Note, that this credit facility agreement highlights as well as explains the individual mortgage loans and establishes the cross-collateralization. Note, that the key lending benchmark are made of a combination of the overall pool leverage and the debt service coverage. What this means, is that stronger performing properties have the potential to support weaker performing properties and traditional assets.

Benefits of Credit Facilities

There are advantages depending on the type of credit facility you opt for. Credit facilities creates a backup source of revenue for different projects and also offer other kinds of benefits that businesses can benefit from.

  • It offers the borrower the ability to ladder debt maturities.
  • As a borrower, you have the ability of substituting properties in the collateral pool, along with expansion. you can also borrow up features.
  • Flexibility on capital deployment.
  • Borrowers have access and speed to funding when needed which is especially essential in a highly competitive acquisition market.
  • There is a streamlined and efficient underwriting process for standardized loan documents.
  • A standard feature of the presence of full-term Interest-only.
  • There’s access to mix fixed rate and floating rate debt by the borrower.
  • Leverage on low cost of capital as a result of the pooled nature of the collateral.
  • No minimum occupancy requirement for individual assets.


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