Facility Agreement Template

In plain language: Identifies the lender and borrower as legal entities, labels the type of facility (term, revolving, or multi-draw), and states the maximum committed amount.

Common mistake: Using a trade name instead of the borrower's registered legal entity. If the borrowing entity name does not match the company's constitutional documents, security registrations and enforcement steps may be challenged.

In plain language: Restricts how the borrower may use the drawn funds to a defined purpose — such as working capital, capital expenditure, or a specific acquisition.

Common mistake: Leaving the purpose clause blank or writing 'general corporate purposes' when the facility is earmarked for a specific use. An undefined purpose weakens the lender's ability to call a default if funds are misapplied.

In plain language: Sets out how the borrower requests funds, the minimum notice period, minimum drawdown amounts, and the conditions that must be satisfied before the lender is obliged to fund.

Common mistake: Failing to list all conditions precedent explicitly. Lenders who fund before receiving board resolutions or executed security documents may lose priority over other creditors.

In plain language: States whether the rate is fixed or floating, identifies the reference rate, sets the margin above that rate, and specifies when interest must be paid.

Common mistake: Referencing LIBOR without a replacement rate fallback. LIBOR was discontinued in 2023; agreements that do not include SOFR (US) or SONIA (UK) fallback language create an unresolvable rate calculation dispute.

In plain language: Defines the amortisation schedule or bullet repayment date, and states the borrower's right or obligation to prepay early, including any associated fees.

Common mistake: Omitting a prepayment fee provision for fixed-rate facilities. Without one, the lender has no compensation for reinvestment risk when the borrower repays early at a lower rate environment.

In plain language: Sets quantitative tests the borrower must meet at each test date — typically covering leverage, interest cover, and minimum liquidity — with the consequence of breach being an event of default.

Common mistake: Setting covenant levels too tight relative to the borrower's historical performance, leaving no headroom. A covenant breach triggers a technical default even when the borrower is fully solvent and servicing debt on time.

In plain language: A set of factual statements by the borrower confirming legal capacity, valid authority, accuracy of financial statements, no undisclosed litigation, and compliance with laws — typically repeated on each drawdown.

Common mistake: Borrowers signing representations without disclosing known exceptions. An undisclosed matter that later surfaces can be treated as a misrepresentation and trigger an event of default retroactively.

In plain language: Lists the circumstances that entitle the lender to cancel undrawn commitments, demand immediate repayment, and enforce security — including payment default, covenant breach, insolvency, and cross-default.

Common mistake: No cure period for covenant breaches. An automatic-default trigger without any remedy window can cause otherwise-solvent borrowers to tip into insolvency unnecessarily, exposing the lender to reputational and legal risk.

In plain language: Identifies the collateral the borrower grants to secure repayment — such as a fixed and floating charge over assets, share pledge, or real property mortgage — and any guarantees from parent entities or principals.

Common mistake: Not registering the security interest within the required statutory timeframe. In most jurisdictions, failure to register within 21–30 days of creation renders the security void against a liquidator or other creditors.

In plain language: Specifies which country's or state's law governs interpretation and enforcement, and in which courts disputes must be resolved.

Common mistake: Selecting a governing law that has no operational nexus to either party. Enforcement courts in some jurisdictions will decline to apply foreign law on commercial lending terms, creating an unenforceable agreement in the very jurisdiction where assets are located.

A facility agreement is a legally binding contract between a lender and a borrower that sets out the full terms on which credit is made available — including the maximum amount, drawdown mechanics, interest rate, repayment schedule, financial covenants, security, and events of default. It is the governing document for most commercial lending relationships, replacing informal letter agreements once a facility exceeds a material threshold or requires security.

The terms are often used interchangeably, but a facility agreement typically refers to a more structured arrangement that may permit multiple drawings over time — such as a revolving credit line or multi-draw term facility — rather than a single lump-sum disbursement. A simple loan agreement usually covers a one-time advance with a fixed repayment schedule. Facility agreements also tend to include more detailed covenant and security packages reflecting the ongoing nature of the credit relationship.

This template can be adapted for a term loan facility (fixed drawings repaid on a schedule), a revolving credit facility (drawn, repaid, and redrawn repeatedly up to the limit), or a multi-draw facility (multiple disbursements during a commitment period with a single repayment date). The drawdown mechanics, repayment, and commitment-fee clauses should be adjusted to match the facility type chosen.

Financial covenants are quantitative tests — such as maximum net debt-to-EBITDA leverage or minimum interest cover — that the borrower must pass at each test date, typically quarterly. They give the lender an early warning of deteriorating credit quality before a payment default occurs. A covenant breach is itself an event of default, giving the lender rights to accelerate or renegotiate terms even if the borrower is still making payments on time.

No statute requires a written facility agreement for every loan, but institutional lenders, private debt funds, and most sophisticated private lenders will not advance material credit without one. A written agreement is essential to enforce the security package, rely on representations, and accelerate on a covenant breach. Without it, the lender's claim is limited to the amount advanced with simple interest, and enforcing repayment requires litigation rather than contractual acceleration.

For corporate borrowers, lenders typically require a fixed and floating charge over all assets and undertaking, a share pledge over the borrower's subsidiaries, and sometimes a debenture over specific real property or intellectual property. Parent guarantees or personal guarantees from directors are common for smaller businesses or where the borrower's standalone credit quality is insufficient. The security package must be registered at the relevant company registry within the statutory window to be enforceable against third parties.

When an event of default occurs, the lender typically has the right to cancel any undrawn commitment, declare all outstanding principal and accrued interest immediately due and payable (acceleration), and enforce any security granted. Most agreements include grace periods — commonly 5 business days for payment defaults and 20–30 days for covenant breaches — before the lender can exercise these rights. The borrower may also seek a waiver or covenant reset from the lender if the breach is technical rather than a sign of genuine credit deterioration.

For straightforward bilateral term loans between two domestic parties, a high-quality template reviewed by a finance lawyer is usually sufficient. Legal advice is strongly recommended when the facility involves security registration in multiple jurisdictions, cross-border parties, a leveraged acquisition structure, or complex covenant packages. The cost of a 1–3 hour legal review ($500–$1,500) is small relative to the risk of an unenforceable security interest or an acceleration clause that cannot withstand court scrutiny.

For USD facilities, use the Secured Overnight Financing Rate (SOFR), published daily by the New York Federal Reserve. For GBP facilities, use SONIA (Sterling Overnight Index Average), published by the Bank of England. For EUR facilities, use €STR (Euro Short-Term Rate), published by the European Central Bank. Each rate is compounded in arrears over the interest period using a standard compounding convention; the template should specify the compounding method and include a fallback for days when the reference rate is not published.