A promised facility is a credit facility in which the terms and conditions are clearly defined by the lender and imposed on the lending company. A promised facility is a source of credit that has committed to providing a loan to a business. For the facilities incurred, the borrowing company must meet the specific requirements of the lender to obtain the funds indicated. The security of unrelated trade finance facilities is different. However, there is usually the ability of the lender to walk on borrowers` shoes and execute the transaction if necessary. This allows the lender to have comfort in the execution of the trade. A live example is a concentrated soybean office at a larger commodity trader. The office may have several unrelated commercial financing facilities and decide to use these organizations for various aspects of their exchanges, which can be defined in their agreement with the Bank and deemed appropriate by the funder. Otherwise, they may get resistance from some funders or have a good relationship with others with respect to certain transaction cycles. Because small businesses may have difficulty having reasonable monthly cash flows, an unrelated facility can help them work until they have a greater presence in the market and increase their annual turnover. Like a long-term credit facility, a revolving credit facility provides a maximum amount of loans over a period of time. Unlike a long-term loan, any money repaid can be borrowed with a revolving credit.
The borrower can withdraw and repay the tranches up to a maximum amount of capital when deciding during the term of the loan. Unrelated institutions differ from other institutions in that they do not have many specific general conditions. They are most used for temporary funding. Although they are comfortable for businesses (they work in the same way as overdraft accounts), they are more expensive because they often do not need guarantees and the lender may not do much about the account if the borrower does not use the facility much. The terms and conditions for related and unrelated facilities are used to refer to capital financing conditions for short- or long-term agreements. In the case of a promised facility, the lender must pay money to the borrower as soon as the terms of the loan agreement are agreed. In return, the borrower pays the lender a commitment tax – a fee that must be paid to a lender on available but unused amounts and is calculated from time to time as a percentage of these unused funds. Suppose XYZ needs extra money from time to time, because it has huge wage costs and less predictable payments from customers every two weeks.
She speaks to the ABC bank about the problem. Bank ABC offers XYZ an unsuitable facility, which means XYZ can borrow money in the very short term if its wage costs do not match its cash flow. This allows ABC to see how much XYZ manages its debts and gives ABC an idea of its intention to lend again to XYZ. An unsuitable facility is used to finance a company`s short-term needs. This can be explained by fluctuations in cash flows, short-term trades, seasonality, pay differentials during the year or a number of other issues.