Fund Based and Non-Fund Based Credit Facilities

Fund Based and Non-Fund Based Credit Facilities

Fund based credit facilities are those where, upon sanction, there is an actual outflow of funds from the bank to the borrower, whereas non-fund
based facilities are those, at the time of sanction which do not involve such outflow of the bank’s funds. Typical examples of fund based facilities are term loan, cash credit and overdraft and that of non-fund based facilities are letters of credit, bank guarantees, letter of comfort, etc. Non-fund based facility may turn into a fund based facility on due date / occurrence of the specified event like devolvement of bills under LC, invocation of Bank Guarantee, etc.