Wikipedia article:Revolving credit

Revolving credit is a type of credit that does not have a fixed number of payments, in contrast to installment credit. Examples of revolving credits used by consumers include credit cards. Corporate revolving credit facilities are typically used to provide liquidity for a company's day-to-day operations. They were first introduced by the Strawbridge and Clothier Department Store.

Typical characteristics

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• The borrower may use or withdraw funds up to a pre-approved credit limit.
• The amount of available credit decreases and increases as funds are borrowed and then repaid.
• The credit may be used repeatedly.
• The borrower makes payments based only on the amount they've actually used or withdrawn, plus interest.
• The borrower may repay over time (subject to any minimum payment requirement), or in full at any time.
• In some cases, the borrower is required to pay a fee to the lender for any money that is undrawn on the revolver; this is especially true of corporate bank loan revolving credit facilities.

A revolving loan facility provides a borrower with a maximum aggregate amount of capital, available over a specified period of time. However, unlike a term loan, the revolving loan facility allows the borrower to drawdown, repay and re-draw loans advanced to it of the available capital during the term of the facility. Each loan is borrowed for a set period of time, usually one, three or six months, after which time it is technically repayable. Repayment of a revolving loan is achieved either by scheduled reductions in the total amount of the facility over time, or by all outstanding loans being repaid on the date of termination. A revolving loan made to refinance another revolving loan which matures on the same date as the drawing of the second revolving loan is known as a "rollover loan", if made in the same currency and drawn by the same borrower as the first revolving loan. The conditions to be satisfied for drawing a rollover loan are typically less onerous than for other loans.
A revolving loan facility is a particularly flexible financing tool as it may be drawn by a borrower by way of straightforward loans, but it is also possible to incorporate different types of financial accommodation within it - for example, it is possible to incorporate a letter of credit facility, swingline facility or overdraft facility within the terms of a revolving credit facility. This is often achieved by creating a sublimit within the overall revolving facility, allowing a certain amount of the lenders' commitment to be drawn in the form of these different facilities.


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