Credit Facility Agreement (UAE)

A Credit Facility Agreement in the UAE is a binding contract between a licensed bank or finance company and a borrower under which the lender commits to make a defined amount of credit available on agreed terms, and the borrower commits to repay all amounts drawn under the facility together with interest and fees. The agreement is governed by the UAE Civil Code (Federal Law No. 5 of 1985), the Commercial Transactions Law (Federal Decree-Law No. 50 of 2022), and the regulatory framework of the Central Bank of the UAE, which requires every institution offering credit facilities in the UAE to hold a valid banking or finance licence and to comply with the Central Bank's Consumer Protection Regulation and Standards.

A credit facility is structurally different from a simple loan. Rather than advancing a single fixed sum, a credit facility creates a commitment by the bank to make credit available up to a maximum limit during an availability period. The borrower draws down amounts as needed, repays, and redraws — a revolving structure that suits working capital financing. A term loan within a facility is a one-time drawdown repayable on a scheduled basis. An overdraft is a facility on the borrower's current account, and a letter of credit facility is a commitment by the bank to pay third parties on the borrower's behalf in trade transactions.

Credit facilities are central to UAE corporate banking. Banks including Emirates NBD, Abu Dhabi Commercial Bank, First Abu Dhabi Bank, HSBC Middle East, and Mashreq Bank routinely document their lending relationships through credit facility agreements modelled on international terms but adapted for the UAE legal environment. For larger syndicated facilities, the Loan Market Association (LMA) documentation framework is commonly used, with UAE law governing provisions inserted by local counsel. For bilateral facilities between a single bank and a borrower, the Credit Facility Agreement records all material terms in one instrument.

The Central Bank of the UAE supervises credit risk management at licensed banks through its prudential regulations, including requirements on loan classification, provisioning, and maximum single-borrower exposures. The Federal Tax Authority administers the 9% corporate tax under Federal Decree-Law No. 47 of 2022, and interest expense under a credit facility is generally deductible for corporate borrowers subject to the interest deduction limitation rules that mirror OECD guidelines. Anti-money laundering obligations under Federal Decree-Law No. 20 of 2018 and Cabinet Decision No. 10 of 2019 apply to banks and require customer due diligence at the outset of any credit relationship.

The forms-legal.com Credit Facility Agreement template structures all key commercial terms — facility type, limit, purpose, availability period, maturity, interest rate, fees, security, covenants, and governing forum — in a clear questionnaire that produces a professional, court-ready document without requiring the parties to start from a blank page.

A Credit Facility Agreement in the UAE is needed whenever a bank or licensed finance company commits to make credit available to a business or individual, and the parties need a written contract that governs the entire credit relationship from drawdown to repayment. The most common corporate use case is working capital financing: a UAE trading company, manufacturer, or service provider approaches its bank for a revolving credit facility that allows it to fund inventory purchases, bridge gaps between invoice dates and customer payment, and manage seasonal cash flow fluctuations. The credit facility agreement documents the facility limit, the drawdown mechanism, and the repayment terms, providing the bank with a legal claim and the borrower with a clear record of its obligations.

Capital expenditure financing is a second major context. When a UAE business needs to purchase equipment, renovate premises, or invest in technology, a term loan facility under a credit facility agreement provides the structured repayment schedule that matches the expected economic life of the investment. The bank and the borrower agree the drawdown date, the repayment dates, and the interest rate at the outset, giving both parties certainty. The Commercial Transactions Law (Federal Decree-Law No. 50 of 2022) governs the commercial loan relationship, and any security over the financed asset is documented alongside the credit facility agreement.

Trade finance is a specialised application. UAE import and export businesses frequently require letter of credit facilities, guarantees, and documentary collection facilities to execute cross-border transactions. A combined credit facility agreement documents all these sub-limits within one master agreement, simplifying the administration of the banking relationship. The Central Bank of the UAE has specific guidelines on trade finance and documentary credits, and the bank's obligations under those guidelines are incorporated by reference into the credit facility.

Property developers in the UAE use credit facility agreements for construction finance. The bank commits to an overall development facility, typically drawn in tranches as construction milestones are achieved, with repayment triggered by sales proceeds or a term out into a permanent loan. The Dubai Land Department and the Real Estate Regulatory Authority (RERA) oversee developer finance in Dubai, and the credit facility must be structured consistently with their requirements on escrow accounts and end-buyer protection.

Start-ups and SMEs in the UAE, including free zone companies in the DIFC, the ADGM, the Jebel Ali Free Zone, and other licensed zones, use credit facilities to supplement equity capital. Where the company cannot offer real estate security, the bank may take a personal guarantee from the founder, an assignment of receivables, or a pledge over the company's shares. The credit facility agreement documents these security arrangements and the financial covenants that the bank requires to monitor its credit risk over the life of the facility.

A UAE Credit Facility Agreement must include several key elements to be fully enforceable before the Dubai Courts, the Abu Dhabi Judicial Department, the DIFC Courts, or the ADGM Courts. The parties clause identifies the bank with its Central Bank of the UAE licence number and the borrower with its Emirates ID or trade licence number; for corporate borrowers, the signatory's authority under the Commercial Companies Law (Federal Decree-Law No. 32 of 2021) should be supported by a board resolution that explicitly authorises entering into the credit facility.

The facility description clause specifies the type of facility — revolving, term loan, overdraft, letter of credit, or a combined structure — and the total facility limit in UAE dirhams. The purpose clause restricts the borrower's use of the funds to the approved purpose, typically working capital, trade finance, or capital expenditure, and breach of the purpose clause is an event of default under the Commercial Transactions Law (Federal Decree-Law No. 50 of 2022). The availability period defines the window during which drawings can be made, and the maturity date is the final repayment date.

The interest and fees clause is commercially critical. For EIBOR-referenced facilities, the agreement must specify the EIBOR tenor (typically 1-month or 3-month), the margin, and the interest payment dates. For fixed-rate facilities, the rate must be stated as an annual percentage. The arrangement fee is payable upfront and covers the bank's cost of assessing and structuring the facility. The commitment fee accrues on undrawn amounts throughout the availability period, compensating the bank for the capital it has committed to hold against the facility. Default interest at a rate above the normal rate applies to overdue amounts; UAE courts will reduce default interest rates they regard as excessive, so a moderate rate of 2% to 3% per annum above the base rate is standard market practice.

Security and covenants clauses protect the bank throughout the life of the facility. The forms-legal.com template allows the user to select from a menu of security types (real estate mortgage, receivables assignment, share pledge, guarantee) and to record financial covenants such as a debt-to-EBITDA limit or a minimum liquidity floor. Financial statements and other information undertakings must also be listed, as they are the bank's primary source of ongoing credit monitoring. Events of default should cover payment failure, covenant breach, misrepresentation, insolvency, and material adverse change, with appropriate cure periods for curable breaches.

The governing law and jurisdiction clause selects either UAE law and an onshore court, or DIFC/ADGM law and those courts. UAE law governed credit facilities referencing EIBOR are the dominant market practice for AED-denominated lending. English law governed facilities are common for USD-denominated cross-border lending where a UAE entity borrows from an international syndicate, in which case a UAE law opinion from local counsel accompanies the primary English law agreement. The forms-legal.com Credit Facility Agreement covers the UAE law structure and provides the core contractual framework that local counsel can supplement with market-standard representations, undertakings, and events of default appropriate to the specific transaction.

Completing a UAE Credit Facility Agreement requires advance preparation of the facility structure, agreed commercial terms, and security arrangements. Begin with the parties section: enter the lender's full registered name and Central Bank of the UAE licence number, along with its registered address. Enter the borrower's full legal name, Emirates ID (for individuals) or trade licence number (for companies), and registered address. Where the borrower is a company, confirm that the signatory has board authority under the Commercial Companies Law (Federal Decree-Law No. 32 of 2021) before executing the agreement.

In the facility details section, select the type of facility from the dropdown. For a revolving facility, the borrower can draw, repay, and redraw throughout the availability period. For a term loan, a single drawdown amount is advanced and repaid on schedule. Enter the total facility limit in AED and the approved purpose — working capital and trade finance are common. Enter the availability period end date, after which no new drawings can be made, and the final maturity date by which all outstanding amounts must be repaid. Both dates should be in DD/MM/YYYY format.

In the interest and fees section select the base rate reference; EIBOR is standard for AED facilities. Enter the margin as a percentage per annum. The total interest rate will be the current EIBOR plus this margin, calculated daily. Enter the default rate, typically 2% to 3% per annum above the normal rate applied to overdue amounts. Enter the arrangement fee, which may be a fixed AED amount or a percentage of the facility limit, and the commitment fee percentage on undrawn amounts.

In the security and conditions section select the collateral type. If a mortgage over real estate is selected, a separate mortgage deed must be executed and registered with the Dubai Land Department or the relevant emirate's land authority before the first drawdown. If receivables are assigned, a separate assignment agreement should be prepared. Record any financial covenants the borrower must maintain, such as a debt-to-EBITDA ratio or minimum cash balance, and consider how these will be monitored through quarterly or annual financial statements.

Select the governing forum, then review the complete document in the forms-legal.com live preview. Check that the facility type, limit, and maturity date are consistent, that the interest and fee terms are clearly expressed, and that the security provisions cross-reference the correct separate security instruments. Download the document, have it signed by authorised signatories on both sides, and execute all security documents before the first drawdown. Retain the signed agreement, the board resolutions authorising signature, and evidence of security registration as the primary enforcement documents.

Legal requirements for a UAE Credit Facility Agreement arise from the UAE Civil Code (Federal Law No. 5 of 1985), the Commercial Transactions Law (Federal Decree-Law No. 50 of 2022), and the regulatory framework of the Central Bank of the UAE. The Civil Code's contract validity requirements under Articles 125 and 129 — consent, capacity, lawful subject matter, and lawful cause — apply to credit facilities. The Commercial Transactions Law governs commercial loans and the enforcement of security cheques, commercial payment obligations, and the rights of creditors in the event of default.

The Central Bank of the UAE's licensing requirement means that only institutions holding a valid banking or finance licence may offer credit facilities in the UAE. Unlicensed lending is prohibited, and agreements made by unlicensed lenders may be unenforceable. The Central Bank's Consumer Protection Regulation and Standards require licensed banks to disclose all costs of credit, including the annual percentage rate and all fees, before the borrower signs. For corporate facilities, the Central Bank imposes credit risk management standards including maximum single-borrower exposure limits and concentration risk rules.

Security documentation must comply with emirate-level registration requirements. Mortgages over Dubai real estate must be registered with the Dubai Land Department under Law No. 14 of 2008; mortgages in Abu Dhabi require registration with the Abu Dhabi Department of Municipalities and Transport. Share pledges must be registered with the Securities and Commodities Authority (SCA) for public companies or noted in the company's share register for private companies. Unregistered security may be invalid against third parties.

Anti-money laundering obligations under Federal Decree-Law No. 20 of 2018 and the associated Cabinet Decisions require banks to conduct customer due diligence, beneficial ownership verification, and ongoing transaction monitoring for all credit relationships. The Federal Tax Authority administers corporate tax under Federal Decree-Law No. 47 of 2022, and the interest deduction limitation rules cap the deductibility of net interest expense at 30% of adjusted EBITDA for corporate borrowers, mirroring OECD Base Erosion and Profit Shifting guidelines. Borrowers and lenders should factor these tax rules into the economic analysis of any significant credit facility.

Common mistakes in UAE Credit Facility Agreements frequently involve the security, covenant, and interest provisions that determine the lender's position in an enforcement scenario. Failing to register security before the first drawdown is the most consequential error: a mortgage over real estate that has not been registered with the Dubai Land Department or the Abu Dhabi Department of Municipalities and Transport is ineffective against third parties, which means a subsequent purchaser or another creditor may take priority over the bank in the event of the borrower's insolvency.

Ambiguous interest rate provisions create disputes when benchmark rates change. An agreement that references EIBOR without specifying the tenor (1-month, 3-month, or 6-month) or the reset mechanism may lead to disagreement about how interest is calculated during periods of rate volatility. The Central Bank of the UAE publishes daily EIBOR rates, and the agreement should specify which publication date applies for each interest period.

Overlooking financial covenant definitions leads to disputes about whether a breach has actually occurred. Covenants referencing EBITDA, net debt, or working capital should define each term precisely, because accounting standards and the Federal Tax Authority's rules under Federal Decree-Law No. 47 of 2022 may produce different figures than the commercial parties intend. Borrowers who agree covenants without checking whether their current financial position already breaches those covenants are especially at risk of an immediate technical default.

Failing to include a cure period for non-payment covenant breaches deprives the borrower of the opportunity to remedy a minor oversight, potentially triggering acceleration and enforcement when the bank would prefer to maintain the relationship. The Commercial Transactions Law (Federal Decree-Law No. 50 of 2022) does not require cure periods but UAE courts have discretion to relieve against disproportionate enforcement in some circumstances. Setting an excessive default interest rate risks judicial reduction, while setting no default interest at all reduces the deterrent against late payment. Matching the default rate to market practice (2% to 3% over the normal rate) and ensuring the Central Bank of the UAE's Consumer Protection disclosure requirements are met provides the most defensible position.