Finance term
Revolving Credit Facility (Revolver)
Also known as: revolver, revolving credit facility, revolving line, corporate revolver, revolving loan facility
Definition
A revolving credit facility (revolver) is a committed line of credit that allows a borrower to draw, repay, and redraw up to a maximum commitment amount over the facility's term — providing flexible, on-demand liquidity for working capital needs. Unlike term loans, revolvers have no fixed amortization. The Federal Reserve's G.19 Consumer Credit data and FDIC call reports track revolving credit usage. See federalreserve.gov/releases/g19 and fdic.gov.
Detailed explanation
A revolving credit facility is the most flexible form of corporate debt — a committed (binding lender obligation) line of credit where the borrower can draw, repay, and redraw any amount up to the commitment limit, as frequently as needed, throughout the facility's term (typically 3-5 years for corporate revolvers; 1-2 years for asset-based revolvers).
**Structure and mechanics:** - **Commitment:** The lender commits to advance up to the maximum commitment amount on demand. The borrower pays a commitment fee (unused fee) on undrawn balances — typically 25-50 bps annually. - **Borrowings:** Drawn amounts accrue interest at the applicable rate (typically SOFR + spread for floating-rate revolvers). Repaid amounts immediately become re-available. - **Borrowing base (for ABL revolvers):** Asset-based lending revolvers cap availability at a percentage of eligible accounts receivable and inventory — the 'borrowing base.' Maximum availability = 85% of eligible A/R + 50-60% of eligible inventory, up to the commitment ceiling. Daily or weekly borrowing base certificates (BBC) may be required. - **Letters of credit (LCs):** Revolvers typically include a sub-facility for standby or commercial letters of credit — LC issuance reduces revolving availability dollar for dollar but earns the issuing bank an LC fee.
**Corporate vs. ABL vs. small business revolvers:** - **Corporate revolvers:** Used by investment-grade or near-investment-grade companies as liquidity backstop — often undrawn. Priced at SOFR + 100-200 bps. - **ABL revolvers:** Asset-based lending revolvers for borrowers with significant A/R and inventory. Advance rates against specific assets; borrowing base discipline. More flexible on leverage ratios, tighter on asset quality. - **Small business revolvers:** Business lines of credit for SMBs, typically $25K–$500K, annual renewal, often personally guaranteed. SBA CAPLines program provides revolving working capital lines up to $5M with SBA guaranty. See sba.gov/funding-programs/loans/sba-loans for SBA revolver programs.
**FDIC and Fed oversight:** FDIC bank examiners assess revolving credit facilities as part of credit quality reviews. The Federal Reserve's G.19 statistical release tracks total revolving credit outstanding in the U.S. economy (federalreserve.gov/releases/g19).
◈ Worked example
- ABL revolver mechanics: A manufacturer has $2M in eligible A/R. ABL revolver advances at 85% = $1.7M available. Company draws $1.2M for payroll and supplier payments. As A/R is collected, availability increases. As new invoices are generated, availability increases again. Daily BBC tracks eligible A/R changes.
- Unused fee economics: A $5M corporate revolver with 30 bps unused fee costs $15K/year when undrawn ($5M × 0.30%). In a liquidity crisis, the company draws $4M — now paying SOFR+200 on $4M and 30 bps unused fee on $1M. The revolver provides insurance value even when undrawn.
- SBA CAPLines: A food distributor borrows $500K under an SBA CAPLines revolving line. The SBA guaranty (75%) allows the bank to approve a borrower that wouldn't qualify for a conventional revolver. Drawings fund inventory purchases; repayment from A/R collection. Renewable annually. See sba.gov/funding-programs/loans/sba-loans.
Common questions
The most-asked questions about Revolving Credit Facility (Revolver) — answered straightforwardly.
What is the difference between a revolver and a term loan? +
A term loan is a fixed-amount, fixed-amortization loan — once repaid, amounts cannot be re-borrowed. A revolver is a flexible commitment — amounts can be drawn, repaid, and redrawn repeatedly up to the commitment limit. Term loans fund specific capital investments; revolvers fund ongoing working capital needs with variable timing. Most credit facilities include both a term loan (fixed capital) and a revolver (working capital flexibility).
What is an unused fee (commitment fee) on a revolver? +
The unused fee (or commitment fee) is the cost of maintaining undrawn revolver availability. Lenders charge this fee because they must hold capital against the committed (undrawn) portion of the revolver. Typical rates: 25-50 bps on undrawn balances for investment-grade corporate revolvers; 35-75 bps for leveraged revolvers. The fee compensates the bank for the optionality value it provides — committed capital on demand.
What is a borrowing base certificate (BBC) for an ABL revolver? +
A borrowing base certificate is a periodic report (weekly or monthly) the borrower submits to the ABL lender, detailing eligible accounts receivable and inventory. The BBC calculates the current borrowing base — the maximum available revolver capacity. ABL lenders require regular BBCs to monitor collateral quality and ensure outstanding drawings don't exceed eligible collateral. Failure to deliver a required BBC is typically an event of default.
Further reading
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