uncommitted credit facility

Uncommitted credit facilities are short-term credit facilities which are subject to the discretion of both the borrower and the lender. That is, the lender has no obligation to extend credit to the borrower, and the borrower has no obligation to borrow from the facility and can terminate it at any time. For example, a lender can decide whether to extend credit for borrowing on a case by case basis. Each time a borrower requests credits, a lender can make different lending decisions.

The nature of an uncommitted credit facility shows that the lender needs to evaluate the updated financial condition of a borrower on an ongoing basis, such as the lender’s business performance and the general conditions of the credit market. This is different from the comprehensive due diligence that a lender would commonly undertake before deciding whether to enter into a committed credit facility with a borrower. Additionally, the flexibility of an uncommitted credit facility could also result in higher interest rates compared to a committed credit facility.

Therefore, uncommitted credit facilities generally play supplementary roles for businesses. Businesses often borrow under uncommitted credit facilities to meet their short-term working capital needs, such as payroll, rather than long-term commitments of lending agreement.

[Last reviewed in March of 2025 by the Wex Definitions Team]

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