A CFOs Guide to Understanding Credit Facilities: Primer
Credit facilities play a crucial role in providing companies with flexible, scalable financing solutions to meet their operational and strategic needs. For CFOs, understanding the intricacies of credit facilities is essential for optimizing their capital structure, ensuring liquidity, and managing cash flow efficiently. Credit facilities allow companies to access working capital, fund growth initiatives, and navigate unforeseen challenges, yet they come with unique structures, terms, and covenants.
This primer will offer CFOs an in-depth look at key considerations in credit facility agreements, including best practices for projecting and managing liquidity, typical covenant structures, and guidance on how to negotiate the most competitive terms. Whether you’re negotiating a new credit line or managing an existing facility, this guide will equip you with the insights necessary to make strategic, data-driven decisions that strengthen your company’s financial position.
What Is a Credit Facility?
A credit facility is a flexible type of lending agreement provided by banks and financial institutions that allows businesses to borrow money to fund operations, growth initiatives, and a range of other corporate needs. It’s fundamental in managing a company’s cash flow and growth, especially when it comes to balancing short-term operational costs or large capital expenditures, such as:
Working capital requirements
Funding growth projects
Financing an acquisition
Paying a one-time dividend to shareholders
Buying out existing shareholders
Refinancing other debt instruments
Positioning the company to navigate a challenging economic environment
Want to learn more? Download the full primer:
A CFOs Guide to Understanding Credit Facilities
What is a Credit Facility
Correctly Sizing a Credit Facility
How to prepare a short-term liquidity analysis
How to prepare a long-term liquidity analysis
Scenario & Contingency Planning
Why contingency planning is important and types of scenarios to consider
Understanding the Terms of a Credit Agreement
A lender’s perspective on measuring your company’s credit risk and interest rate risk
Key terms of a credit agreement for CFOs to understand, including pricing and fees
Key Loan Covenants of a Credit Agreement
Detailed discussion of affirmative, negative, and financial covenants in a credit facility
As you Grow: Refinancing A Credit Facility
Benefits of refinancing as your company grows
Refinancing vs. Restructuring
Similarities and key differences to understand
5 Steps to Securing a New Credit Facility
From understanding the market landscape to running a competitive, disciplined process, we outline five steps to securing a new credit facility