Core Lending Functionality
Drawdowns, extending further credit and repayments
As a reminder, the term 'Line of Credit', Secured Line', 'Secured Line of Credit', 'Line' or 'LoC' means a single credit facility for a single Borrower. The Borrower can draw down on any number of individual Credit Lines (aka Credit Positions) made available by any number of Lenders at any interest rates and denominated in any token.
Lender deposits funds | Credit Line is created
A Lender can propose a Credit Line at any time.
The deposit succeeds and the Credit Line is created if both Borrower and Lender consent to terms and mutually sign a transaction regarding:
The interest rates (drawn rate & facility rate)
The token being borrowed (aka Credit Token)
The amount of the Credit Token being deposited by the Lender
The deadline/term of the Line as well as the security/collateral parameters are the same for all Credit Lines and are set at deployment*. *[In the next version, individual Credit Lines will have separate deadlines, rather than the Line of Credit].
Borrowing
A Borrower can draw down at any time from any Credit Line as long as the Line of Credit as an Active status
Lender deposits more funds to an existing Credit Line (existing Lender)
A Borrower and a Lender can agree to increase the credit available on the terms already agreed by making further deposits to an existing individual Credit Line.
New Lender deposits funds
New Lenders can deposit funds once terms are agreed with the Borrower in the same way as mentioned above.
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 same Deadline as existing Credit Lines [changing in V2].
The Borrower and new Lender must mutually consent to terms as mentioned above.
Interest Rates
A Borrower and a Lender must agree on two borrowing rates:
The Drawn Rate, i.e. the interest rate charged to a Borrower on actual borrowed / drawn down funds
The Facility Rate, i.e. the interest rate charged to a Borrower on the .
The parties can agree on new rates at any time. This can happen for the purpose of refinancing or if the Line risks becoming impaired.
Accrued Interest Calculation
Interest on a Credit Line 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.
Repaying Credit Lines
A Borrower, or any other party, can deposit Credit Tokens (i.e. the token initially lent out by a Lender) at any time to repay lenders. 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.
Withdrawals by Lenders
If funds are available on a Credit Line, i.e. not all drawn down, a Lender can withdraw at any time.
Closing a Line of Credit
A Borrower can deposit funds and repay at any time and subsequently close a Credit Line as long as the principal and interest have been fully repaid.
When a Borrower closes the last available Credit Line, the status of the Line of Credit changes to repaid and no more Credit Lines can be proposed.
Line Health Status
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 Asset Collateral (if used).
There are five types of status: uninitialized, active, repaid, liquidatable, and insolvent.
Borrower Credit Events
If a Borrower doesn't fully repay all Credit Lines by the deadline, the Borrower has defaulted on its obligations and the status may change to liquidatable.
See here for further details, including breaches of the Min Collateral Ratio.
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