Posted on December 19, 2020 in
Written by: David B. Honig
For more information on security features in credit-based credit facility structures, see practical information: basic lending – security. A basic bond facility (“BB-Facility”) is a short-term cash line designed to provide short-term liquidity through advances or trading instruments (“instrument”) such as letters of credit (see letters of credit, summary table) or demand guarantees (see: Reserve Loans, on request for guarantees/borrowings – Summary Table). It is a kind of commercial financing. For more information on the structures of the basic credit facility, see the practical note: credit-based credit facilities – structure, key concepts and risks. A live example is a concentrated soybean office at a larger commodity trader. The office may have several unrelated commercial financing facilities and decide to use these organizations for various aspects of their exchanges, which can be defined in their agreement with the Bank and deemed appropriate by the funder. Otherwise, they may get resistance from some funders or have a good relationship with others with respect to certain transaction cycles. Because small businesses may have difficulty having reasonable monthly cash flows, an unrelated facility can help them work until they have a greater presence in the market and increase their annual turnover. Finally, the lender declares itself ready to provide short-term financing to the borrower; this possibility can be compared to a promised facility, in which the financing agreement is clearly defined by the credit company and where there are stricter criteria to which the borrower must comply. BB facilities are traditionally made available on an unrelated basis, although the hired BB establishments are also in use.
An unrelated facility is a facility under which the lender is not required to lend or use an instrument and does so at the request of the borrower. The terms of the agreement are influenced by the provision of a BB facility on an unrelated or related basis. The main differences are that unrelated establishments differ from other institutions in that they do not have many specific conditions. They are most used for temporary funding. Although they are comfortable for businesses (they work in the same way as overdraft accounts), they are more expensive because they often do not need guarantees and the lender may not do much about the account if the borrower does not use the facility much. Unhired facilities can contribute to the provision of short-term financing or the borrowing of a business, without the need to set clear terms or the possibility of extending the loan. A borrower may benefit from an unrelated facility or an unrelated line of credit to cope with seasonal changes in income or short-term payment obligations (e.g. B an overdraft facility). In trade finance, unrelated trade finance facilities can help overcome short-term payment requirements, such as the purchase of bulk goods.
B when prices suddenly fall and a commercial discount can be obtained for the purchase of larger volumes.