Manjusha Rajas Johari

Define Revolving Agreement

A revolving agreement, also known as a revolving credit facility, is a type of financial agreement between a borrower and a lender. It enables the borrower to obtain access to funds on an on-going basis, up to a certain maximum limit. The borrower can draw down, pay back, and redraw funds as required, as long as they do not exceed the maximum agreed limit.

Revolving agreements are common in both personal and business finance, with credit cards being a common example of a revolving credit facility. However, this type of agreement can also be put in place for larger loans, such as those used by businesses to finance their operations.

One useful feature of revolving agreements is that they allow the borrower to use only the funds they need, when they need them. This can be helpful for businesses that experience fluctuating cash flows, as they can access the necessary funds to cover expenses during slow periods, and then repay the amounts drawn down during more prosperous times.

Another advantage of revolving agreements is that they are often more affordable than traditional term loans because interest is only charged on the outstanding balance. This makes them more flexible and cost-effective than term loans, which have a fixed payment schedule and require regular repayments regardless of how much of the loan is used.

When seeking a revolving agreement, it is important to read the terms and conditions carefully, including any fees that may be charged for unused funds. Borrowers should also be aware that the lender can adjust the maximum limit of the facility at any time, depending on the borrower`s creditworthiness.

In conclusion, revolving agreements provide a flexible and cost-effective way for borrowers to access funds when they need them. This type of facility can be particularly useful for businesses that experience fluctuating cash flows or who are looking to finance investments or capital expenditure. As with any financial agreement, it is important to carefully review the terms and conditions before signing on the dotted line.

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