Delayed draw

Definition

Committed debt a borrower may take later, in tranches, not at close.

Why It Matters

A lender that commits a delayed draw is agreeing today to fund an amount you have not needed yet, usually for add-on acquisitions or capital projects. It matters to a buyer for two reasons that pull in opposite directions. It is the cheapest growth money you will ever be offered, because the terms are set while the lender still wants your business. And it is a commitment you pay for whether or not you use it, through an unused-line fee, and through covenants measured against the whole facility while you are only using part of it.

In numbers: A $5M facility drawn $3M at close leaves $2M available. At a 0.5% unused fee that costs $10,000 a year to keep open before a dollar of it is borrowed.