BANK FACILITY LETTER ---- AN INTRODUCTION

Bank facility letter is letter issued by the bank to their customer. Every year or periodically  bank will make some amendment  on this letter according to the negotiation of the customer and according to the revised business rules of the banks.

It is an agreement between the bank and any corporation. In this letter bank will mention the details of the bank facilities which are offered to that particular customer. Its terms  varing to customer to customer depends on their credit worthness and financial stability.

In this facility letter bank will explain what are the facilities they are offered to that particular customer and its  maximum monitory limit and how much bank will charge to them by way of bank commission, bank charges , and bank interest ect.

Over draf facility, Bill discounting facility, Letter of credit facility, Bank guarantee facility etc are some of the common bank facilities used in business world. Bank will provide separate maximum limit for each such facilities. And separate bank charges for each facilities.All such details are mentioned in that Bank facility letter.

Before issuing bank facility letter , bank will analyse the financial position ,credit worthness, volume of business,  furure growth potentials,Value of fixed assets etc of that particular organization from their last few years financial statement and current years budgets.

 In short  companies  those companies having good  financial position will get all bank facilities with less cost because bank knows that companies can pay their debts on time without any problems. More over bank will monitor these companies financial position time to time . Most of the banks will ask to these companies to submit their quarterly financial statement  and monthly business details to bank on or before the specified date agreed previously at the time of negotiation.

Normally If any company’s financial position is not good, then the  bank will not provide any bank facilities to them or will  provide only few facilities with minimum monitory limit with high cost( bank charges, bank interest ect). Because bank having only reasonable assurance that  such company can pay their debts on time. So bank will charges high cost due to the high risk.