Bilateral Bank Facility

Definition

A Bilateral Bank Facility is a financial arrangement in which a single bank extends credit to a corporate customer. This facility is exclusively between the two parties involved and is designed to support various business activities, such as working capital needs, capital expenditures, or other corporate financial requirements. The unique aspect of this arrangement is the direct relationship developed between the lender (the bank) and the borrower (the corporate client), which can foster a more personalized banking experience.

Examples

Example 1: A multinational corporation secures a $50 million bilateral bank facility from Bank XYZ to finance its new product development and operational expansions.
Example 2: A small enterprise obtains a bilateral bank facility from Local Bank A for $2 million to upgrade its manufacturing equipment.

Frequently Asked Questions

What are the advantages of a Bilateral Bank Facility?

Customized Solutions: Tailored to meet the specific needs of the borrower.
Simplicity: Easier to manage as it involves only one financial institution.
Strong Relationship: Fosters a stronger relationship between the bank and the corporate client, which can lead to better terms and conditions.

How does a Bilateral Bank Facility differ from a Syndicated Bank Facility?

Bilateral Bank Facility: Involves a single lender and borrower.
Syndicated Bank Facility: Involves multiple lenders jointly extending credit to a single borrower.

Can either party terminate a Bilateral Bank Facility?

Yes, the terms and conditions of termination are outlined in the agreement. The facility could be terminated for various reasons such as breach of contract, change in borrower’s financial condition, or specific stipulations in the contract.

What industries typically use Bilateral Bank Facilities?

Industries ranging from manufacturing, technology, pharmaceuticals to real estate frequently use bilateral bank facilities for their funding needs.

Syndicated Bank Facility

A loan extended by multiple financial institutions to a single borrower, commonly used for large-scale financing needs.

Relationship Banking

A banking strategy that utilizes long-term relationships with customers, typically offering personalized financial products and services.

Revolving Credit Facility

A type of credit that allows a borrower to withdraw, repay, and redraw funds up to a pre-approved credit limit.

Term Loan

A loan with a specified repayment schedule and a fixed or variable interest rate.

Online Resources

Suggested Books for Further Studies

“Corporate Finance” by Jonathan Berk and Peter DeMarzo: This book provides an in-depth understanding of corporate finance principles, including loan facilities.
“Commercial Banking: The Management of Risk” by James W. Kolari and Benton E. Gup: This book covers a variety of banking topics, including relationship banking and credit facilities.
“Business Financing: Global Perspectives” by Michael T. Skully: Examines different business financing methods and analyses, including bilateral and syndicated bank facilities.

Accounting Basics: “Bilateral Bank Facility” Fundamentals Quiz

### What defines a bilateral bank facility? - [x] A loan arrangement between a single bank and a corporate customer. - [ ] A loan arrangement involving multiple banks. - [ ] A loan extended to an individual consumer. - [ ] A government-subsidized loan program. > **Explanation:** A bilateral bank facility is a loan arrangement made directly between one bank and one corporate customer. ### What is a primary advantage of a bilateral bank facility? - [x] Stronger relationship between bank and corporate customer. - [ ] Reduced interest rates due to multiple lenders. - [ ] Less financial reporting requirements. - [ ] Required less documentation than other loans. > **Explanation:** One key advantage of a bilateral bank facility is the stronger, more personalized relationship that can develop between the bank and the corporate customer. ### Which term contrasts with a bilateral bank facility? - [ ] Revolving credit facility - [ ] Term loan - [ ] Relationship banking - [x] Syndicated bank facility > **Explanation:** A syndicated bank facility, which involves multiple lenders providing a loan to a single borrower, contrasts with the bilateral bank facility. ### What type of customers typically use bilateral bank facilities? - [ ] Retail customers - [ ] Government agencies - [x] Corporate customers - [ ] Non-profit organizations > **Explanation:** Corporate customers often use bilateral bank facilities for their specific financial needs. ### Can a bilateral bank facility be customized? - [x] Yes, to meet the borrower’s specific needs. - [ ] No, they are standard for all customers. - [ ] Only in the government banking sector. - [ ] Only for loans under $1 million. > **Explanation:** Bilateral bank facilities can be customized to meet the unique financial requirements of the borrowing corporation. ### What key factor can influence the terms of a bilateral bank facility? - [ ] Local economic conditions - [ ] Government election cycles - [ ] The strength of the relationship between bank and customer - [x] The relationships specifics > **Explanation:** The strength and specifics of the relationship between the bank and the corporate customer can significantly influence the terms of a bilateral bank facility. ### Are bilateral bank facilities usually simpler than syndicated facilities? - [x] Yes, due to involving only one lender. - [ ] No, they always require more paperwork. - [ ] It depends entirely on the loan amount. - [ ] They are always more complex. > **Explanation:** Bilateral bank facilities are generally simpler to manage since they involve only one lender rather than multiple. ### What industries frequently use bilateral bank facilities? - [ ] Personal services - [x] Manufacturing, technology, pharmaceuticals, real estate - [ ] Public utilities - [ ] Retail > **Explanation:** Various industries, including manufacturing, technology, pharmaceuticals, and real estate, frequently use bilateral bank facilities for their funding needs. ### What can result in the termination of a bilateral bank facility? - [x] Breach of contract, changes in financial condition - [ ] A new government policy reducing tax rates - [ ] Regular annual reviews - [ ] Public stock performance > **Explanation:** Situations such as a breach of contract or significant changes in the borrower's financial condition can result in the termination of a bilateral bank facility. ### What is a related term to the concept of a bilateral bank facility? - [x] Revolving Credit Facility - [ ] Mutual Borrowing Agreement - [ ] Consumer Credit Line - [ ] Subsidized Rate Loan > **Explanation:** A revolving credit facility is related to the concept as it also involves credit arrangement, though typically with different terms and structures.