What is a ‘Revolving Loan Facility’A revolving loan facility is a financial institution that lets the borrower obtain a business or personal loan where the borrower has the flexibility to drawdown, repay and redraw loans advanced to it. This type of loan is considered a flexible financing tool due to its repayment and reborrowing flexibility. It is not considered a term loan because, during this allotted period of time, the facility allows the borrower to repay or take the loan out again.
BREAKING DOWN ‘Revolving Loan Facility’A revolving loan facility is typically a variable line of credit used by public and private businesses. Criteria of the loan depend on the stage, size and industry in which the business operates. The financial institution typically examines the company’s income statement, statement of cash flows and balance sheet when deciding whether the business can repay a debt. In most cases, if the company has steady income, strong cash reserves and a good credit score, a loan is granted. The balance on a revolving loan facility may move between zero and the maximum approved value. The financial institution typically charges a fee for extending the loan and a variable interest rate on the loan balance. The rate is often higher than rates charged on other loans and changes with the prime rate or another market indicator. For this reason, when the Federal Reserve increases or decreases interest rates, charges on a revolving loan facility go up or down.