Revolving credit gives the flexibility to draw down, repay and redraw the loan. It can be used with or without security but banks and financial institutions check a business’ income statement, statement of cash flows and balance sheet to make sure that the company can repay a debt. Companies who don’t have a strong financial history should prefer a secured revolving credit.
Another name for this agreement – Fixed Asset Loan Agreement
When is Fixed Asset Revolving Facility Guarantee and Collateral Agreement needed?
This agreement is needed when the companies, big or small, want to have access to a loan that is line of credit (revolving) in nature so that they can get the freedom to draw money whenever they need instead of getting a fixed amount of loan for a fixed amount of period.
Anyone who is looking for such flexibility and wants to opt for a secured loan, in addition, can go for this agreement. It goes without saying that secure loans are far more helpful in accessing a bigger amount of loan from the bank. Lenders always prefer secured loans or asset-based loans so that in the case of a default, they can recoup the damage by seizing the assets or collateral. It should be noted that the interest rates also remain low on revolving credit.
Inclusions in Fixed Asset Revolving Facility Guarantee and Collateral Agreement?
An elaborate agreement like this is best drafted after taking the help of an expert. It is one of the very complex and crucial agreements. It is highly suggested that companies take the help of someone who understands the causes and consequences.
Fixed Asset Revolving Facility Guarantee and Collateral Agreement will include very important information such as the loan amount, loan period, information about the assets, actual value of the assets, names of the parties involved, their addresses, details of interest rates, obligation, dispute resolution, repayment time period, draw charges, etc. Few Inclusive also depend on the lender and their policies.
A lender in these cases always prefers the assets that are easily liquidated or are easily convertible into money.
How to Draft Fixed Asset Revolving Facility Guarantee and Collateral Agreement?
To draft the agreement, it is important to first clarify major rules and definitions, for instance, one must know the difference between a revolving and non-revolving credit. The borrower definitely bears the risk since he has put his assets as security, so he should be cautious with the clauses and lien priority list.
Point by point procedure –
- Understand your needs and identify your assets
- Make sure your assets are clear from anyone else
- Understand the value of your assets well in advance
- Take the help of loan expert
- Read and understand about obligations after the bank’s approval
- Understand the repayment policy and about additional charges
- Make a priority list of the lien
- Read the clauses carefully especially the sale clause
Benefits of Draft Fixed Asset Revolving Facility Guarantee and Collateral Agreement
Both revolving loan facility and collateral based loans are beneficial individually. Together they work wonders for all kind of businesses but mostly, for medium-size businesses which have income fluctuations, unexpected expenses, etc. As soon as receivables or assets are received, the money is used to pay down the loan balance. If the borrower needs additional financing, another advance can be requested with receivables.
- Maximize the availability of working capital from the company’s current asset base
- Assets as security mitigate the risk for the lender
- Low interest rate on the loan
- Bigger amount released by the bank
- Businesses don’t need to have a past cash flow, profitability, or even personal and business credit scores
- Flexibility of credit line
- Interest only on the borrowed money
- Higher risk
- In case of default, chances of getting loan in the future reduces
Key Clauses in Fixed Asset Revolving Facility Guarantee and Collateral Agreement
Before drafting this agreement, both the lender and borrower should take note of some of the key clauses that are –
- Granting clause
- Sale clause
- Acceleration clause
- Dispute resolution
- Priority details
What Happens When You Violate Fixed Asset Revolving Facility Guarantee and Collateral Agreement?
If the lender doesn’t get his amount back, he can increase the interest rate or incur additional charges. Such details would already be part of the agreement, however, in the case of a bigger default, the lender is well within his rights to approach the state courts. Not to forget the lender has the assets that he can choose to seize to coup with the money loss.
It’s a very important document that protects both the lenders and borrowers. It’s suggested that one should take the help of an expert while drafting it. Here is a sample drafted by our experts. You can customize it further.
Sample for Fixed Asset Revolving Facility Guarantee and Collateral Agreements
A sample of the agreement can be downloaded from below.
Download this USA Attorney made original Agreement for only $9.99