A commitment letter and a facility agreement are two important documents that are used in the financial industry. Both documents are used to outline the terms and conditions of a loan, but they serve different purposes.

A commitment letter is a document that is issued by a lender to a borrower. It outlines the terms and conditions of a loan that the lender is willing to provide to the borrower. This letter is usually issued after the lender has completed its due diligence and has determined that the borrower is creditworthy. The commitment letter is not a binding agreement, but it is a promise that the lender will provide the loan as outlined in the letter.

A facility agreement, on the other hand, is a binding legal document that outlines the terms and conditions of a loan. This agreement is signed by both the lender and the borrower and is used to govern the relationship between the two parties. The facility agreement includes details such as the amount of the loan, the interest rate, repayment terms, and any other covenants or conditions of the loan.

There are several key differences between a commitment letter and a facility agreement. The commitment letter is not a binding agreement, while the facility agreement is a legal document that both parties are obligated to follow. The commitment letter is usually issued before the facility agreement and is used to provide the borrower with an idea of what the loan will look like. The facility agreement is the actual loan agreement and includes all of the details of the loan.

Another key difference between the two documents is that the commitment letter is usually issued for a short period of time, typically between 30 and 90 days. During this time, the lender may conduct additional due diligence on the borrower before issuing the facility agreement. The facility agreement, on the other hand, is typically a longer-term agreement that will be in place for the duration of the loan.

In conclusion, a commitment letter and a facility agreement are two important documents in the financial industry. While they both outline the terms and conditions of a loan, they serve different purposes. The commitment letter is a non-binding promise from the lender to provide a loan, while the facility agreement is a binding legal document that both parties are obligated to follow. As a borrower, it is important to understand the differences between these two documents when seeking financing.

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