Resources / Glossary / Revolving credit facility

Revolving credit facility.

Aka. Revolver · RCF · Line of credit
All terms

What is a revolving credit facility?

A revolving credit facility — a revolver — is a committed line of credit that a borrower can draw, repay, and draw again, up to an agreed limit, over the life of the facility. Unlike a term loan, which is borrowed once and amortized, a revolver is reusable: capacity that has been repaid becomes available to borrow again.

It is the flexible, working-capital layer of a financing. A business uses the revolver to fund seasonal swings, cover timing gaps between receivables and payables, and hold liquidity in reserve. In a leveraged buyout, the revolver sits alongside the term loan in the same credit agreement, almost always undrawn at close.

Because the lender is committing to be available whether or not the borrower draws, the borrower pays for the option. A commitment fee accrues on the undrawn portion, and interest accrues only on amounts actually outstanding.

How a revolving credit facility actually works

A revolver is sized as a limit, then used as a buffer.

  1. Commit. Lenders commit a maximum facility amount in the credit agreement, typically held by the arranging banks rather than sold to institutions.
  2. Draw. The borrower draws as needed, often subject to a borrowing base or conditions, and the drawn balance bears interest at a spread over a floating rate.
  3. Pay the fee. On the undrawn portion, the borrower pays a commitment or unused-line fee for keeping the capacity reserved.
  4. Repay and redraw. Cash is swept against the revolver and redrawn as the business cycle requires, so the balance fluctuates.
  5. Issue letters of credit. Many revolvers include a sublimit for letters of credit, using committed capacity to backstop obligations without funding cash.

Frequently asked.

4 questions
01 What's the difference between a revolver and a term loan?

A term loan is drawn once and repaid on a schedule; once repaid, it cannot be borrowed again. A revolver is a reusable limit — repaid amounts return as available capacity — designed for fluctuating, short-term needs rather than permanent financing.

02 Why is a revolver usually undrawn at the close of a buyout?

The revolver is liquidity insurance, not deal funding. The purchase price is financed with term debt and equity; the revolver is left available so the business has a cushion for working capital and unexpected needs after close. Drawing it at day one would signal a thin liquidity position.

03 What is a commitment fee on a revolving credit facility?

It is the fee a borrower pays on the undrawn portion of the facility, compensating lenders for reserving capital they may have to fund on demand. The borrower pays this fee even in periods when nothing is drawn — it is the price of the standing option to borrow.

04 What is a borrowing base?

A borrowing base ties available revolver capacity to the value of pledged assets — typically a percentage of eligible receivables and inventory. Availability rises and falls with those assets, so the facility flexes with the business rather than offering a fixed limit. Asset-based revolvers rely on this mechanism.

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