Demand facility

Definition

A demand facility is repayable whenever the lender calls it, without waiting for a default. Most traditional overdrafts are legally repayable on demand.

In plain terms

The theoretical "pay it all back now" power is rarely used casually, but it exists — which is why demand facilities are risky to treat as permanent capital.

Why it matters for your company

Fund long-term needs with committed term borrowing, and keep demand facilities for genuine short-term swings. Creditcorp’s committed facility avoids the on-demand risk.

How lenders read it

When a lender frames borrowing as repayable on demand, they are keeping maximum optionality: the right to reassess your company at any point, not just at a fixed maturity date. Underwriters typically watch ongoing indicators — how the account is conducted, whether covenants or informal expectations are being met, and how the wider relationship is trending — rather than waiting for a scheduled review. That ongoing scrutiny is the trade-off for the flexibility a demand facility usually offers on drawdown and use.

For a director, the practical implication is that a demand facility is never fully "banked" in the way a committed term facility is. It can be a perfectly normal, everyday tool for managing short-term working capital swings, but it should not be treated as guaranteed capital sitting in reserve for a rainy day — because the reserve can, in theory, be withdrawn.

Common pitfalls

A frequent mistake is using a demand facility to fund something that is genuinely long-term — a piece of equipment, a leasehold fit-out, or a permanent increase in headcount — simply because the facility was already in place and convenient to draw on. If the lender's view of the company changes, that spending has effectively been financed with capital that was never contractually secured for the long term. Matching the facility type to the purpose it is actually funding is the safer discipline.

Another common trap is treating the absence of a formal default as safety. Because a demand facility can be called without a breach having occurred, directors sometimes assume that staying within any agreed limit and paying as normal is enough to guarantee continuity. It reduces the likelihood of early recall, but it does not remove the underlying feature — the facility is repayable on demand by its nature, not only when something has gone wrong.