What is a Revolving Acceptance Facility by Tender (RAFT)?
A Revolving Acceptance Facility by Tender (RAFT) is a financial arrangement where a bank provides an underwritten facility to place sterling acceptance credits. These credits are distributed through a predefined panel of eligible banks via a tender process. The facility is typically “revolving,” meaning it can be reused up to a certain limit as repayments are made, making it useful for continuous financing needs.
Key Features of RAFT:
- Underwritten Facility: The bank offers a guaranteed amount of financing.
- Tender Panel: Distribution of credits occurs through a panel of eligible banks.
- Sterling Acceptance Credits: The facility involves sterling-denominated credits.
- Revolving Nature: Borrowers can reuse the facility up to a predetermined credit limit as they make repayments.
Examples of Revolving Acceptance Facility by Tender
-
Corporate Financing: A multinational corporation may use a RAFT to finance its various operational needs on a rolling basis, ensuring consistent availability of funds while optimizing terms through a competitive tender process.
-
Trade Transactions: An importer in the UK could utilize RAFT to secure short-term financing for multiple shipping consignments, benefiting from the repeated use of the credit line without undergoing a separate approval process for each transaction.
Frequently Asked Questions (FAQs)
What is the primary advantage of using a RAFT?
The main advantage is the revolving nature of the credit line, which provides flexibility and assurance of funding availability while maintaining competitive terms through the tender process.
How does RAFT differ from a standard loan?
Unlike standard loans, RAFT is typically underwritten and allows for the repeated use of the credit facility up to a specified limit, ideal for continuous or recurring financial needs.
Who can participate in the tender panel of a RAFT?
A predefined group of eligible banks, usually selected based on their creditworthiness and ability to handle sterling acceptance credits, participate in the tender panel.
What types of businesses benefit most from RAFT?
Businesses with ongoing or recurring financing needs, such as importers, exporters, and multinational corporations, are the primary beneficiaries of RAFT due to its flexibility and cost-effectiveness.
Related Terms
-
Acceptance Credit: A short-term credit instrument used primarily in trade finance, where the bank accepts to pay a draft on behalf of its client.
-
Revolving Credit Facility: A type of credit that allows the borrower to draw down, repay, and draw again, up to a pre-approved credit limit.
-
Underwriting: The process through which an entity takes on financial risk for a fee, often involving the guarantee of payment in case of a potential funding shortfall.
Online Resources
Suggested Books for Further Reading
- “The Handbook of International Trade and Finance” by Anders Grath
- “Principles of Corporate Finance” by Richard A. Brealey and Stewart C. Myers
- “Banking and Financial Institutions: A Guide for Directors, Investors, and Borrowers” by Benton E. Gup
Accounting Basics: Revolving Acceptance Facility by Tender Fundamentals Quiz
Thank you for diving into the intricate aspects of the Revolving Acceptance Facility by Tender (RAFT). Keep challenging yourself to enhance your knowledge of complex financial instruments and their applications in today’s dynamic business environment!
