Glossary - Revolving Credit Facility

A revolving credit facility is a line of credit that is arranged between a bank and a business. It allows the business to draw down, repay, and reborrow funds up to a set limit within a specified period. Unlike a term loan, the revolving nature of the facility means it can be tapped into repeatedly as long as the maximum limit is not exceeded. Interest is typically charged only on the amount of funds drawn down, not on the undrawn available balance.

Also known as

  • Revolving Loan Facility
  • Credit Line
  • Bank Line

Use cases examples

  • Loan Agreement: The Company may from time to time request loans under this Revolving Credit Facility up to an aggregate amount of $5,000,000, subject to the terms and conditions herein.
  • Financial Statement Disclosure: As of the reporting date, the Company had $2,000,000 drawn and outstanding under its $10,000,000 Revolving Credit Facility.

Considerations for investors

  • Investors should assess the terms of a Revolving Credit Facility to understand its impact on the company's liquidity and financial health.
  • Monitoring the use of the facility can provide insights into the company’s operational efficiency and cash management practices.

Considerations for founders

  • Understanding the interest rates, fees, and covenants associated with the Revolving Credit Facility is critical to manage costs effectively.
  • Careful management of the facility is necessary to ensure that it supports the business’s cash flow needs without leading to unsustainable debt.

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