Guide
What a facility letter is, and what to check in one
A facility letter is the document a lender uses to offer a business loan or overdraft and set its terms. Once the business signs it, it is the contract. It says how much you can borrow, what it costs, what must happen before the money is paid, what security the lender holds, what you promise to do, and what lets the lender ask for the money back. This page explains the main terms. It is general information, not advice on your own agreement.
What it is
What a facility letter is
Lenders use different names for the same kind of document: facility letter, facility agreement, loan agreement or overdraft agreement. "Facility" just means the borrowing the lender is making available. NatWest publishes the templates it uses for company lending for the solicitors on its panel (NatWest, facility agreements). Its company loan template is headed "Loan Agreement" and its overdraft template "Overdraft Agreement". Both start with the key details (amount, rate, fees, dates), then set out the terms.
The main terms
The main terms, and what to check in each
The quotes are from NatWest's two templates, read on 21 October 2026. Other lenders' documents will be worded differently, so look for each term in your own letter.
| Term | What it means | What to check |
|---|---|---|
| Limit or loan amount | The most you can borrow. For an overdraft: "The Customer may overdraw the Facility Account up to the Limit." (overdraft template) | That it covers what you need. On an overdraft, going over the limit is not allowed by right: "The Bank may refuse a drawing which would cause the Limit to be exceeded." (overdraft template) |
| Interest and margin | The rate, usually a margin over a reference rate. The loan template sets it as a percentage "p.a. over Base Rate" (loan template). | The margin, the reference rate it sits on, and any higher rate. The overdraft template has a separate rate "on any amount over the Limit" (overdraft template). |
| Fees and costs | Arrangement and security fees, and the lender's own costs. The loan template makes the customer pay the bank's costs of "taking and releasing security" and its "professional fees and costs" (loan template). | Every fee, including the lender's legal costs and any renewal fee. The overdraft template says "Further fees will be payable from time to time in respect of the Bank reviewing the Facility." (overdraft template) |
| Preconditions | What must be in place before you can draw the money. In the loan template the bank must have the signed agreement and be satisfied with "all security and any related insurance" (loan template). | How long each one will take. If the loan is not drawn within the time the agreement sets, the loan template says "the Bank may decide not to provide the Loan" (loan template). |
| Security | What the lender can take if the debt is not repaid. In the loan template it is listed in a security schedule, and "The Loan will also be secured by any further security held by the Bank for the Customer's liabilities." (loan template) | Which assets and which guarantees. Security you gave for older borrowing may cover the new facility too. How charges show on the public register: company charges explained. |
| Covenants and information | Promises the business makes: financial covenants (tests such as interest cover, worked out from your accounts) and information undertakings (sending accounts and a compliance certificate by set dates). | That you can meet each test with room to spare, how often it is tested, and the deadlines for sending accounts. What happens if a test fails: covenant breach. |
| Events of default | The events that let the lender end the facility early. In the loan template, if one occurs "the Bank may demand immediate repayment of the Loan". The list includes "failure to pay any amount payable under this Agreement on its due date" and "a breach of a Financial Covenant" (loan template). | How wide the list is. NatWest's includes a default on borrowing from other lenders, "a significant drop in the value of the Customer's business or any security", and circumstances "which cause the Bank to believe that the Customer's obligations to the Bank will not be met" (loan template). Check for any time allowed to put a failure right. |
| Repayment | How and when the money is paid back. An overdraft: "A debit balance on the Facility Account is repayable on demand." (overdraft template) A term loan: by instalments to a final repayment date. | Whether it is an overdraft or a term loan, because that decides whether the lender can ask for it back without a default. |
| Review date | When the lender looks at the facility again. The overdraft template: "The Facility will be reviewed by the Bank at least once a year." (overdraft template) | The date, the fee, and what the lender will ask for. Prepare with our facility review pack checklist; what the review is for: annual facility review. |
Sources: NatWest Loan Agreement (06/26) and Overdraft Agreement (06/26) templates (Word documents), from NatWest's facility agreements page, read 21 October 2026. They are templates with placeholder figures, so no rate, fee or covenant level is quoted here.
Facility letter or loan agreement
Facility letter versus loan agreement
For a straightforward bank loan or overdraft there is often no difference except the name. The signed letter is the agreement. NatWest's overdraft template says "THIS AGREEMENT AND THE BANK'S OVERDRAFT TERMS (WHICH FORM PART OF THIS AGREEMENT) TOGETHER FORM AN IMPORTANT CONTRACT", so some of the terms can sit in a separate set of standard terms that the letter refers to. Ask for that document too, and read it.
NatWest's panel page also lists longer styles of facility agreement, such as a revolving credit facility. The longer the document, the more of the terms above are spelt out in it rather than in the bank's standard terms.
The difference that matters more is the type of borrowing. An overdraft is repayable on demand. A term loan is repaid on a schedule, and the lender can ask for it all back early only if an event of default happens. The security is usually in separate documents, such as a debenture, so read those alongside the letter: borrowing with an existing debenture.
Before you sign
A short list before you sign
- Read the key details page against what you agreed: amount, margin, fees, dates.
- List every precondition and who is doing each one.
- Work out each financial covenant from your latest accounts and forecasts.
- Read the events of default, including any that mention other borrowing.
- Check what security and guarantees you are giving, and whether older ones will cover this facility.
- Get legal advice. Both NatWest templates advise it (loan and overdraft templates).
About this page
This page is general information about how facility letters work. It is not advice on your own agreement, and it does not recommend any lender. Established Finance is an introducer, not a lender: if we can help with a funding question, we may introduce you to a provider.
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If this is part of a finance question for your business, tell us what's happening and we'll tell you whether it's something we can help with.
Adam Parker
Founder of Muswell Rose Consulting Ltd, which trades as Established Finance · Managing Director of Penny, an invoice finance business, from July 2020 to November 2023, and working in mortgages, commercial finance and fintech lending since 2010 (career history; career record).
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Common questions
Questions about this
Is a facility letter legally binding?
Once the business and the lender have both signed it, yes: it is the contract for the loan or overdraft. NatWest's own company loan template opens with "THIS AGREEMENT IS AN IMPORTANT CONTRACT. YOU SHOULD TAKE LEGAL ADVICE BEFORE SIGNING."
Can a bank ask for an overdraft back at any time?
Usually, yes. NatWest's overdraft template says "A debit balance on the Facility Account is repayable on demand." A term loan is different: it is repaid on the agreed schedule, and the lender can ask for it all back early only if an event of default happens.
What is the margin in a facility letter?
The margin is the part of the interest rate the lender adds on top of a reference rate. NatWest's loan template sets the rate as a percentage "p.a. over Base Rate", so the rate you pay moves when the Bank of England base rate moves.
Should I get legal advice before signing a facility letter?
NatWest's do. Both NatWest templates we read tell the customer to take legal advice before signing. A solicitor can check the security, the covenants and the events of default against what the business can actually meet.