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Clean-Up Provision
Also called clean-up period, annual clean-up requirement, resting period, zero-balance requirement.
A covenant on a revolving line requiring the balance to fall to zero, or to a stated level, for a set number of consecutive days in each annual period.
Drafted with AI assistance. Not yet independently checked. Nobody has verified the claims on this page against a source, so treat the figures and legal points as a starting point rather than as settled, and confirm anything you are about to act on. How we check things.
What it means
A line of credit is priced and structured as short-term, self-liquidating money: you draw to buy inventory or cover a receivable gap, the cash cycle turns, and you repay. A clean-up provision is the test of whether that is actually happening. If the balance can rest at zero for the required window each year, the gap is cyclical. If it cannot, the line is funding something permanent and the bank is holding a term loan it priced as a revolver.
The clause states the required level (usually zero, sometimes a stated ceiling), the number of consecutive days, and the period in which the window must fall. Some agreements let the borrower choose the window; others fix it. Read whether the days are consecutive or aggregate — the difference is large for a seasonal business.
Where you find it
Bank operating lines are the classic home. It appears less often on asset-based revolvers, where a borrowing base does similar work, and rarely on fintech lines and cards. Some loan programs and some bank credit policies require it; the note and the loan agreement are the only authority for whether yours does.
What happens if you fail it
Failing a clean-up is a covenant breach, not a payment default, and it surfaces at the annual review. The usual consequences are non-renewal, a reduction in the limit, a demand to term out the balance over an amortising schedule, or a waiver granted with a fee and tighter conditions.
Where this one catches people
The clean-up is the covenant borrowers do not diary, because nothing about it feels like a payment. You can make every interest payment on time for three years and still be in breach, and the discovery happens in a review meeting rather than at a due date.
The consequence is the part that hurts. Terming out a revolver converts an interest-only obligation into principal plus interest, and the principal on a fully drawn line is a substantial monthly number the business was never budgeting. If you know you cannot rest the line, raise it before the review and ask about restructuring rather than renewing — a properly sized term loan alongside a smaller line is usually a better shape than a revolver you never clear.
Worked through
Illustrative only. A $250,000 line requires a zero balance for 30 consecutive days in each 12-month period.
The business draws to $250,000 in January for seasonal inventory, collects through the summer, reaches a low of $40,000 in September, and draws again in October. It never reaches zero. The covenant is breached even though every interest payment was made.
At review, the bank declines to renew and terms out the average outstanding balance of $180,000 over 36 months. Principal alone is $180,000 ÷ 36 = $5,000 a month, plus interest, against a business that had been paying interest only on the drawn balance and had no $5,000 line in its budget.
Figures in the example are illustrative. They show the arithmetic, not a quote — what any one lender would charge is on that lender's page, where it is published at all.
Where you will meet this term
Read next
Clean-Up Provision — common questions
What does clean-up provision mean?
A covenant on a revolving line requiring the balance to fall to zero, or to a stated level, for a set number of consecutive days in each annual period.
Where does clean-up provision catch people out?
The clean-up is the covenant borrowers do not diary, because nothing about it feels like a payment. You can make every interest payment on time for three years and still be in breach, and the discovery happens in a review meeting rather than at a due date.
Is clean-up provision the same as an interest rate?
Clean-Up Provision is defined above; if you are comparing it against a rate, check whether the two measures share a time dimension before you put them side by side.
Which products does clean-up provision apply to?
Working Capital, Business Line of Credit, Asset-Based Lending.
Is there a worked example of clean-up provision?
Yes, on this page, and it is labelled illustrative. It shows the arithmetic, not a quote from any lender.
What else should I read alongside clean-up provision?
Covenant, Credit Limit, Draw period, Line of credit, Renewal.
Has this definition been checked?
Not yet. This entry is drafted and live, and the notice at the top says so. Confirm anything you are about to act on.
Is this legal advice?
No. It is a definition. What a clause does in your contract, in your state, is a question for a lawyer licensed where you are.
Can I suggest a term?
Yes — [email protected]. The glossary grows from what people are actually shown in contracts.