How does a revolving credit facility differ from a term credit facility?
Answer – The outstanding loan amount with a revolver secured by receivables and/or inventory may fluctuate on a daily basis. With a term loan, the outstanding amount is fixed for a period of time, ranging from as brief as one month up to 10 years. A term loan generally provides for an agreed upon payment schedule, and amounts paid on a term loan generally cannot be re-borrowed. In contrast, a revolver allows the borrower to borrow, repay, and re-borrow as needed over the life of the loan facility. There are advantages to both revolvers and term loans depending on the borrower’s needs. The structure of revolvers provides a great deal of flexibility for borrowing and repayment. Most companies secure a revolver with current assets, such as receivables and inventory, and use the borrowed funds to finance working capital needs. In contrast, companies tend to secure term loans with fixed assets, such as property and equipment, and use the borrowed funds to finance longer-term needs and addit
