Availability Period In Loan Agreement
One of the characteristics of a long-term loan is that once repaid, it generally cannot be repaid, unlike a revolving credit facility (planned next month) or an overdraft. A commitment fee may be due for a temporary loan, as these are facilities incurred. The commitment fee is calculated as a percentage of the unused funds that the lender has promised to the borrower from time to time. The royalty covers the lender`s costs of providing funds for the loan, which it is then unable to lend to anyone else. In addition, the borrower may, after a sufficient announcement, pay all or part of the loan in advance (i.e. before the dates indicated in the repayment plan), for example because he no longer needs as much money as he borrowed it first. It may have to pay a royalty to the lender to compensate for the interest shortfall the lender would have received if the money had been pending; this tax is called a «down payment fee.» The use of tranches provides the borrower with some flexibility, which can be further increased if the borrower allows the borrower to obtain money in different currencies. The interest on a long-term loan is probably less than the interest paid in the event of an overdraft and is either fixed at a fixed interest rate or, more generally, at an amount (known as a «margin») above the corresponding LIBOR (London Interbank Offered Rate). If the borrower decides to use his right to deduct during a period of availability, he must inform the lender (usually two or three days notice) in order to allow the lender to obtain the necessary funds. The borrower must choose the first interest period.
At the end of the interest period, the borrower pays interest on the amount borrowed and chooses the next interest period. In the case of a temporary loan, the borrower is generally allowed to make a short turnaround period in which he can withdraw funds. This is called the «availability period.» Additional credits may be used in increments or in tranches, as agreed as part of the loan facility and at the borrower`s discretion. Each tranche has its own pre-agreed terms, which must be met, and its own availability period. If no credit is deducted during the corresponding availability period, these funds will no longer be available and the commitment will be automatically cancelled. The use of the tranches provides the borrower with greater flexibility and control over the amount of money borrowed and hence the interest paid.