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Revolving credit
Also called revolver, revolving line, revolving line of credit.
A facility you can draw, repay and redraw up to a limit, where cost applies to the outstanding balance and repayment restores availability.
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
The defining feature is redraw. Repay $30,000 on a $100,000 revolver and $30,000 of availability comes back. That is what makes it suitable for working capital cycles - inventory bought and sold, receivables collected and replaced - where the need recurs rather than being a single purchase.
Costs beyond interest on the drawn balance: an unused line fee on undrawn availability, per-draw fees on some facilities, and an annual or renewal fee. Many agreements also impose a cleanup or resting requirement - the balance must sit at zero for a stated number of consecutive days each year - which is a test of whether the line is funding a cycle or covering a structural deficit.
Revolvers are reviewed and renewed periodically, usually annually, and the lender can decline to renew, reduce the limit or add conditions at that point. Availability may also be governed by a borrowing base rather than a flat limit.
Where this one catches people
A great many products marketed as business lines of credit do not revolve. Each draw is a separate fixed-cost advance with its own term and its own total repayment, and repaying one restores nothing. Two questions settle it: does repaying restore my available limit, and is the cost charged on the outstanding balance over time or fixed at the moment I draw?
Worked through
Illustration. A $100,000 revolver. Draw $60,000 in January, repay $40,000 in March: availability returns to $80,000 and cost accrues only on what is outstanding.
Compare a $100,000 draw-based product where each draw is a $60,000 advance repayable as $72,000 over six months. Repaying it early does not reduce the $72,000 and does not restore a limit - a second draw is a second advance, underwritten and priced again. The marketing for both uses the phrase line of credit.
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.
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Revolving credit — common questions
What does revolving credit mean?
A facility you can draw, repay and redraw up to a limit, where cost applies to the outstanding balance and repayment restores availability.
Where does revolving credit catch people out?
A great many products marketed as business lines of credit do not revolve. Each draw is a separate fixed-cost advance with its own term and its own total repayment, and repaying one restores nothing. Two questions settle it: does repaying restore my available limit, and is the cost charged on the outstanding balance over time or fixed at the moment I draw?
Is revolving credit the same as an interest rate?
Revolving credit 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 revolving credit apply to?
Working Capital, Business Line of Credit, Asset-Based Lending.
Is there a worked example of revolving credit?
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 revolving credit?
Borrowing base, Draw, Line of credit, Material adverse change, Maturity.
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.