Working Capital Facility Agreement Template for the United States

A Working Capital Facility Agreement is a comprehensive commercial lending document that establishes a revolving credit arrangement between a lender and borrower under United States law. This agreement provides businesses with flexible access to funds for day-to-day operations, allowing them to draw down money as needed, repay it, and access it again up to a predetermined credit limit.

When do you need this document?

You need this agreement when your business requires ongoing access to financing for operational expenses, inventory purchases, or accounts receivable management. Manufacturing companies often use these facilities to fund raw material purchases before converting them into finished goods and collecting payment from customers. Retail businesses frequently rely on working capital facilities to stock inventory before peak selling seasons, while service companies may use them to bridge gaps between project completion and client payment. Rapidly growing businesses also benefit from these arrangements to maintain cash flow during expansion phases when revenue may lag behind increased operational costs.

Key legal considerations

The agreement must include detailed facility mechanics specifying drawdown procedures, interest calculations, and repayment terms. Security arrangements are crucial, typically involving floating charges over business assets, accounts receivable assignments, or inventory pledges governed by UCC Article 9. Financial covenants establish minimum performance metrics the borrower must maintain, such as debt-to-equity ratios, minimum cash flow levels, or maximum leverage ratios. Default provisions outline events that trigger acceleration of the facility, including payment defaults, covenant breaches, or material adverse changes in the borrower's financial condition. Cross-default clauses may link this facility to other borrowing arrangements, while guarantee provisions from directors or parent companies provide additional security for the lender.

Legal requirements in United States

Working capital facilities must comply with the Truth in Lending Act (TILA) and Regulation Z, requiring clear disclosure of interest rates, fees, and total borrowing costs. The Equal Credit Opportunity Act prohibits discrimination in lending decisions and mandates fair treatment regardless of personal characteristics. Under UCC Article 9, security interests in personal property must be properly created, perfected, and maintained through appropriate filing statements. Bank Secrecy Act compliance requires customer identification procedures and suspicious activity monitoring. State usury laws may impose maximum interest rate limits, while state banking regulations can affect facility structure and documentation requirements. Multi-state borrowers may need to comply with varying state laws where they operate or maintain assets, particularly regarding security interest perfection and enforcement procedures.