9/24/2023 0 Comments Drawdown meaning in bankingOn the flip side, investors looking for further diversification and/or seeking a pick-up in return over traditional investments, can lend to corporates on an RCF structure. But with the PWLB consultation suggesting a lengthening in settlement terms, and a liquidity squeeze witnessed at year-end within the LA market, it may be time to consider a backup. For even more instant liquidity, local authorities are able to borrow from their peers. However, with only a couple of days’ notice required, local authorities have historically had the Public Works Loans Board (PWLB) for this. when cash inflows cannot meet cash outflows. The facility allows organisations to continue its operations seamlessly, without the worry of not being able to meet payments, such as salaries or the cost of goods and services.Īs mentioned earlier, many organisations will have an RCF in place for times of need or as a lender of last resort, i.e. Local authorities can benefit from an arrangement such as an RCF as both a borrower and a lender.īoth private and public institutions utilise RCFs to fund working capital needs. However, if the local authority is acting as the lender, this provides an extra cushion of security on the investment. Of course, under Section 13 of the Local Government Act 2003, a local authority cannot mortgage or charge any of its assets as security for its borrowings. Sometimes, the lender may choose to secure the loan on the borrower’s assets. A non-utilisation fee is payable on any undrawn amounts. However, the privilege of flexibility also comes with a couple of extra (relatively low) costs attached: an ‘arrangement fee’ and a ‘non-utilisation fee’. The lender typically charges a variable rate of interest when the borrower withdraws funds this is known as the ‘drawdown fee’. Both of these factors make an RCF a key tool for liquidity for many organisations. Secondly, the facility can be accessed at relatively short notice, of usually two to three days. Firstly, it allows the borrower the ability to draw down funds, repay, and then withdraw again, hence the term ‘revolving’. Unlike a term loan which has a fixed repayment schedule, an RCF is much more flexible arrangement, for two keys reasons. A Revolving Credit Facility (RCF) is a form of pre-approved funding provided by a bank or another lender.
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