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Facility Utilisation

Continuing our series of borrowing covenants, let us introduce… “Facility Utilisation”. Just when you thought it was safe to go out into the financial markets alone…

What is Facility Utilisation?

The purpose of the Facility Utilisation covenant is to ensure the usage of the loan facility is directly aligned to business activity. Whilst this is not a common scenario, Banks have experienced instances where facilities have been drawn up but funds were utilised for outside investments.

Simply put, Facility Utilisation is a covenant that suggests that the total amount owing to the bank is to be less than % of the combined holding of total allowable debtors and stock:

Total Amount Owing < % (TBA) total allowable debtors + stock

Further definition of the inputs may include:

  • Allowable debtors excludes overseas debtors, inter company debtors and those with outstandings greater than 90 days; and
  • Allowable stock excludes obsolete stock items and any stock subject to retention of title.

The changing market creates a new lending environment which may vary from one day to the next. At Ledge, we stay on top of these changes and are equipped to assist businesses to source favourable financial outcomes.

If you have any questions or would simply like to know more talk to your Ledge Finance Executive or contact us here.

 

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