What is a Credit Facility?
A credit facility is a structured lending arrangement that provides a borrower with access to funds up to a predetermined limit. Unlike a single loan, facilities offer flexibility. Borrowers can draw, repay, and redraw within the terms. In DeFi, credit facilities enable institutional borrowers to access on-chain capital efficiently.
Types of Credit Facilities
Revolving Credit
- Draw and repay repeatedly
- Pay interest only on outstanding balance
- Similar to a credit card for institutions
Term Facility
- Fixed borrowing amount
- Set repayment schedule
- Cannot redraw repaid amounts
Delayed Draw
- Commitment to lend in the future
- Borrower draws when needed
- Commitment fees apply
Credit Facility Structure
- Commitment Amount: Maximum available to borrow
- Drawn Amount: Currently borrowed
- Undrawn Commitment: Available to draw
- Interest Rate: Cost of borrowed funds
- Commitment Fee: Fee on undrawn amounts
- Maturity: Facility expiration date
DeFi Credit Facilities
Protocols like Maple, TrueFi, and Clearpool offer credit facilities to:
- Crypto market makers needing trading capital
- Institutions requiring flexible borrowing
- Real-world companies seeking alternative financing
Facility Terms
- Typically 6-24 month terms
- Interest rates: 8-15% depending on borrower risk
- May require financial covenants
- Collateral requirements vary
Benefits vs Traditional
- Faster setup than bank facilities
- Potentially lower costs
- 24/7 availability
- Transparent utilization on-chain
Risks for Lenders
- Utilization may be lower than expected
- Borrower creditworthiness can change
- Early repayment reduces expected returns