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LSDefine
Simple English definitions for legal terms
Uncommitted credit facility
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A quick definition of Uncommitted credit facility:
An uncommitted credit facility is a type of short-term loan that can be used by businesses to cover their immediate expenses, like paying their employees. The lender is not obligated to provide the loan, and the borrower can choose not to use it or end it at any time. It's like borrowing money from a friend who can say no, and you can decide not to take it if you don't need it.
A more thorough explanation:
An uncommitted credit facility is a type of short-term credit that is available at the discretion of both the borrower and the lender. This means that the lender is not obligated to provide credit to the borrower, and the borrower is not obligated to use the facility. It can be terminated at any time.
Businesses often use uncommitted credit facilities to meet their short-term working capital needs, such as payroll. For example, a small business may have a line of credit with a bank that they can use to cover expenses during a slow month. If they don't need to use the credit, they don't have to, and they won't be charged any interest or fees.
Compared to committed credit facilities, uncommitted credit facilities are more flexible but also less reliable. With a committed credit facility, the lender is obligated to provide credit to the borrower, which can be helpful for businesses that need a more consistent source of funding.