Core Lending Operations
Drawdowns, extending further credit and repaying loans
Just a reminder that the term 'Line of Credit', Secured Line' or 'Line' means a single lending facility for a single Borrower. The Borrower can draw down on any number of individual credit positions made available by any number of Lenders at any interest rates and denominated in any token.
By making its first deposit, a Lender can create an individual credit position.
The deposit succeeds and the credit position is created if both Borrower and Lender consent to terms and mutually sign a transaction regarding:
- The interest rates
- The token being borrowed (Credit Token)
- The amount of the Credit Token being deposited by the Lender
New Lenders can deposit funds into an active Line once terms are agreed with the Borrower.
They can offer funds in a different token or they can offer different interest rates compared to existing Lenders for the same token.
They do however have to respect the expiry date of the existing Line.
The Borrower and new Lender must mutually consent to terms as mentioned above.
A Borrower and a Lender must agree on two borrowing rates:
- 1.The Drawn Rate, i.e. the interest rate charged to a Borrower on actual borrowed / drawn down funds
- 2.The Facility Rate, i.e. the interest rate charged to a Borrower on the remaining funds available, but not yet drawn down, on the Line
The parties can agree on new rates at any time. This can happen for the purpose of refinancing or if the Line becomes impaired.
Interest starts accruing to a Lender at the Facility Rate as soon as a Lender makes a deposit. This is to compensate the Lender for making available the capital even though the Borrower hasn't yet actually borrowed it.
Interest starts accruing at the Drawn Rate on any funds that are drawn down by a Borrower as soon as they are drawn down.
Any credit that is still available to a Borrower but not yet drawn down will accrue interest at the Facility Rate which is generally lower than the Drawn Rate.
Interest is charged anytime balances are updated (e.g. a new Lender adding or withdrawing credit or a Borrower borrowing or repaying). All these events will trigger the recalculation of the accrued interest that is owed on the credit line whose balance has changed.
A Borrower or any other party can deposit Credit Tokens (i.e. the token initially lent out by a Lender) at any time. These tokens are then available to be withdrawn by Lenders.
If the Line of Credit is Revenue-Based, i.e. secured by a Spigot, then further possibilities for repayment exist.
A Borrower can deposit funds and repay at any time and subsequently close a credit position from a given Lender as long as the principal and interest have been repaid.
When a Borrower closes the last available credit position of the Line, the contract status changes to repaid and no more credit can be added by any Lender.
A healthcheck function can be run at any time to discover and/or update the status of a Line and which can be programmed to take into account predefined covenants such as a minimum collateralization ratio for escrowed token collateral (if used).
There are five types of status: active, repaid, liquidatable, insolvent and uninitialised.
If a Borrower doesn't pay back all debt and close all positions by the end of the term (aka deadline or expiry date), the Borrower has defaulted and the Loan status will change to liquidatable.