Facility

What is a Facility?

Simply put, the facility is the loan taken by a company to meet its working Capital or other financial requirements. The facility can be defined as a deal between a firm and the public or private lending institution that enables the company to borrow a specific sum to cater to its operational capital.

The best part about this loan is that it does not need any Collateral. The company is allowed to make the payment in installments. They can make weekly and monthly payments with the accrued interest until the full amount is repaid.

A facility is specially designed for companies that do not want to slow down their growth during the off-seasons. For instance, the accessory store that has witnessed a drop in its sales can request a million dollars from the Bank to cater to the operational needs such as workers’ salary, utility bills, marketing campaigns, and more. They can repay the full amount with interest in a few months. They can sign an agreement that allows them to pay back the amount in installments. Let’s discuss some of the common examples of facilities.

Examples of Facilities

Overdraft Services

Overdraft services are designed to meet the company’s financial requirements when they are running out of cash. A certain percentage of fees, as well as interest, is charged on the loan amount. This facility comes with a lower cost than loans. Moreover, they do not involve any penalties or additional fees for early payments.

Business Lines of Credit

A business line of credit is an unsecured form of loan that enables companies to borrow their required amount of cash from banks, credit unions, and other moneylenders. The loan is available at a reasonable price and the bank offers flexible tenure on LOC. Businesses can access a high Credit Limit to cater to all their financial requirements and working capital. Moreover, it is a convenient and quick process.

Companies can also opt for revolving credit. It comes with a certain limit without any monthly payments. However, the interest is still charged on this loan. It is designed for businesses that have to meet their working capital requirements. If you are having a low cash balance, then a revolving credit can be your ideal pick. The business lines of credit funds all your financial needs.

Term Loans

It refers to the commercial loan that comes with a fixed interest and a maturity period. The amount is mainly borrowed for investment purposes. The term loan is especially preferred by businesses that need to finance the investment or acquisition projects. Term loans are to be repaid in 3-5 years. Borrowers can make monthly payments or repay the full amount at once. You could also borrow long-term loans that have a maturity period of 20 years. However, these types of loans need security. You may have to use your property or other valuable assets as collateral to secure long-term loans.