Overview

Term loans are usually committed facilities. A “committed” facility is a facility where once the facility agreement has been executed, the lender is under an obligation to advance money when requested by the borrower subject to compliance with certain pre-agreed conditions by the borrower.

Additional funds may be drawn down in stages or “tranches” as agreed under the loan facility and at the borrower’s discretion. Each tranche has its own pre-agreed conditions which need to be satisfied and its own availability period. If funds are not drawn down during the relevant availability period, such funds cease to be available and the commitment is automatically cancelled. The use of tranches gives the borrower greater flexibility and greater control over the amount of money borrowed and, therefore, the amount of interest paid.

source: lexology.com