The following Tax practice note provides comprehensive and up to date legal information covering:
Three common types of loan facility are:
term loans, and
revolving credit facilities (RCFs)
An overdraft is the most common form of bank lending and is used to help solve short-term, day-to-day cash flow issues. As such, an overdraft facility is sometimes referred to as a 'working capital facility'.
A term loan enables the borrower to borrow sums for a specified period of time, known as the 'term'. The purpose of the loan will influence the length of the term.
A revolving credit facility or RCF allows the borrower to draw down, repay and re-draw loans up to the maximum aggregate amount during the term of the facility.
For more information on the features of these types of loan facility, and the advantages and disadvantages of each of them from the borrower's perspective, see Practice Note: Overdrafts, term loans and revolving credit facilities.
A lender's primary concern is that it is repaid. If a borrower becomes insolvent, the lender may have to share the borrower's available assets with other creditors and only receive part of what it is owed as a result. Lenders often take security to protect themselves against this risk and increase the likelihood that they will be repaid. Where security is provided, the lender gets an interest in the security provider's asset(s) giving it comfort
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