Funds to remain available: Overview, definition, and example
What are funds to remain available?
"Funds to remain available" refers to a provision in a financial agreement or contract that ensures a specified amount of funds will be kept accessible or set aside for a particular purpose. This clause is often used in contexts where the borrower, issuer, or financial institution agrees to maintain a certain balance or pool of funds that can be drawn upon when needed, such as in credit agreements, loans, or investment arrangements. The term indicates that the funds will remain liquid and readily available for use during a defined period or under certain conditions, ensuring the necessary resources are present for anticipated needs or obligations.
Why are funds to remain available important?
Funds to remain available are important because they provide financial flexibility and security for both the party requiring the funds and the party providing them. For example, in the case of a credit facility or a loan agreement, ensuring that funds remain available guarantees that the borrower can access the funds when needed without delays or issues. For investors or creditors, the provision helps ensure that their investment is not tied up and that the borrower or entity is financially capable of fulfilling their obligations. This clause can provide assurance that the borrower or issuer will not deplete their available resources to the point of default.
Understanding funds to remain available through an example
Let’s say a company enters into a revolving credit agreement with a bank. The agreement specifies that the company can borrow up to $1 million over the course of the year. However, the contract also includes a clause stating that "funds to remain available," meaning that the company must maintain a balance of at least $200,000 in its credit line at all times, ensuring that the company has the liquidity to cover its financial obligations if necessary.
In another example, a project manager might have an escrow account set up for an ongoing construction project. The contract includes a provision that requires a certain amount of funds to remain available in the escrow account until the project is completed. This ensures that the funds are readily available for the final phase of the project, protecting both the contractor and the client from potential financial disruptions.
An example of a funds to remain available clause
Here’s how a clause related to funds to remain available might appear in a financial agreement or loan contract:
“The Borrower agrees to maintain a minimum balance of [$X] in the designated account throughout the term of the loan to ensure that funds to remain available for repayment of the loan. The Borrower shall not withdraw or deplete these funds without prior approval from the Lender.”
Conclusion
The "funds to remain available" clause is a key provision in many financial agreements, ensuring that certain funds or resources are kept accessible for future use, such as loan repayment or project completion. This provision offers security for both parties, guaranteeing that the necessary funds are available when needed and helping prevent financial shortfalls. By understanding and including this clause, businesses and individuals can manage their financial obligations more effectively and ensure that resources are kept in reserve for anticipated needs.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.