Although, in practice, these two terms are often used interchangeably, a credit facility is a generic concept that includes the transfer of money to a person.
Such transfer can be carried out in different ways and one of them is the loan.
Through a loan:
- The lender (creditor) gives a sum of money (capital or principal amount) to the borrower (debtor) in exchange for the payment of interest.
- The borrower undertakes the obligation to return (amortize) the capital loaned within a certain period and to meet the corresponding interest burden.
In a loan transaction, usually the borrower initially receives the total amount granted; or they receive it when any established condition is met (for example, the work completion certificate).
However, the concept of credit facility is also used with a specific meaning. Thus, a credit facility is a contract by virtue of which the financial institution (called “creditor”) makes available to the client (called “borrower”) a certain maximum amount of money during a specific period, in exchange for payment of interest and a series of commissions; the borrower can dispose, or not, of the maximum amount within a certain period of time.
