Plain definition
A revolving credit facility is a borrowing limit that can usually be drawn, repaid, and drawn again during its availability period, subject to the agreement. Interest is generally charged on the amount actually borrowed, and undrawn fees or other charges may apply. It differs from a term loan because repayment restores borrowing capacity instead of simply reducing a fixed loan balance toward zero.
Illustrative example
Monetary examples use Saudi riyals (SAR). The same principles apply in other currencies.
A retailer has a revolving facility. It draws to pay for seasonal inventory, leaving undrawn before conditions. After collecting from customers, it repays that amount, reducing debt to and restoring of capacity. If a covenant breach or expiry occurs, the unused limit may not be available when it is most needed.
| Facility limit | |
|---|---|
| Debt remaining after repayment | |
| Undrawn capacity |
The available amount is not the same as spare cash: draw conditions, notices, and lender rights may limit use.
Why it matters
A revolving facility can match uneven collections and supplier payments well. It becomes dangerous when management treats it as permanent capital and leaves it fully drawn. Then an ordinary operational dip can remove the remaining buffer and force difficult decisions at the lender’s timetable.
Practical consequence
Track the facility limit, amount drawn, available amount, expiry, interest basis, fees, and every condition to draw. Forecast usage by week against receipts and payments, with a separate downside case. Set an internal ceiling below the legal limit and investigate persistent use; it may signal that inventory, collections, or the funding structure needs repair.