Revolving Credit Agreement Template

In plain language: Identifies the lender and borrower as legal entities, states the purpose of the facility, and defines every capitalized term used throughout the agreement.

Common mistake: Using informal trade names instead of registered legal entity names — the agreement may be unenforceable against the intended party if the entity name does not match public records.

In plain language: States the maximum credit limit, confirms the revolving nature of the facility, and sets the revolving period during which draws and repayments may occur.

Common mistake: Failing to define the revolving period end date. Without a termination date, the lender's commitment is indefinite, creating an open-ended contingent liability on the lender's balance sheet.

In plain language: Specifies how the borrower requests an advance — notice period, minimum advance amount, required certifications, and the lender's funding obligations upon a valid request.

Common mistake: Omitting a minimum notice period for drawdown requests. Without one, the lender cannot operationally plan funding, leading to disputes about whether a draw was timely honored.

In plain language: Defines the applicable interest rate, how interest accrues on outstanding drawn balances, the calculation method (actual/360 or actual/365), and when interest payments are due.

Common mistake: Leaving the reference rate as 'LIBOR' in a template drafted after 2023. LIBOR is retired for most currencies — use SOFR (USD), SONIA (GBP), or EURIBOR (EUR) as appropriate.

In plain language: States when principal repayments are due, confirms that repaid amounts become available to reborrow (subject to the credit limit), and sets the final maturity date for full repayment.

Common mistake: Not specifying whether partial repayments are immediately available to redraw or subject to a re-advance notice period — ambiguity here causes operational disputes between treasury and credit teams.

In plain language: Lists all fees payable under the facility — commitment fee on undrawn amounts, arrangement fee, utilization fee if applicable, and any prepayment penalty.

Common mistake: Omitting the commitment fee entirely in a template to keep it 'simple.' Lenders rely on this fee as compensation for maintaining availability — its absence makes the facility economically unviable for many lenders.

In plain language: The borrower confirms key facts (solvency, no pending litigation, accurate financials) at signing and on each draw date, and commits to ongoing financial and operational obligations throughout the term.

Common mistake: Using financial covenants from a generic template without calibrating them to the borrower's actual balance sheet. A debt-service coverage ratio set at 1.25x may be immediately breached by a borrower whose current ratio is 1.15x.

In plain language: Lists specific triggers — payment failure, covenant breach, insolvency, change of control — that entitle the lender to suspend draws, accelerate the balance, and enforce security.

Common mistake: No cure period for technical or financial covenant defaults. A single missed ratio with no opportunity to remedy can trigger acceleration unnecessarily, destroying an otherwise healthy lending relationship.

In plain language: Specifies what assets secure the facility — a general security agreement, pledge of receivables, or specific collateral — and references any separate security documents executed alongside the agreement.

Common mistake: Describing collateral in the credit agreement without executing and registering a separate security agreement. The reference alone does not perfect the security interest — registration under the UCC, PPSA, or equivalent statute is required.

In plain language: Specifies the jurisdiction whose laws govern the agreement, the courts with exclusive or non-exclusive jurisdiction, and how formal notices between parties must be delivered.

Common mistake: Choosing a governing law with no meaningful connection to where the borrower operates or holds assets. In an enforcement scenario, a foreign-law judgment may be difficult and expensive to execute against domestic assets.

A revolving credit agreement is a legally binding contract between a lender and a borrower establishing a flexible credit facility up to a defined maximum. The borrower draws funds as needed, repays them, and draws again within the credit limit and revolving period — unlike a term loan, which disburses a fixed amount once. It functions similarly to a corporate credit card but is governed by a formal legal agreement with covenants, interest mechanics, and defined default triggers.

A term loan disburses a fixed amount on a single date and is repaid on a set schedule — repaid principal cannot be redrawn. A revolving credit facility allows the borrower to draw, repay, and redraw repeatedly up to the credit limit throughout the revolving period. Revolving facilities are used for working capital and liquidity management; term loans are used for specific capital investments or acquisitions.

At minimum: parties and definitions, the credit limit and commitment, the revolving period and maturity date, drawdown procedure and minimum advance amount, interest rate and calculation method, repayment mechanics, fees (commitment fee, arrangement fee), financial and operational covenants, events of default with cure periods, security and collateral references, and governing law. Missing any of these creates gaps that favor the better-resourced party in a dispute.

A revolving credit agreement is generally enforceable when properly executed by authorized signatories, supported by valid consideration, and compliant with applicable lending and usury laws in the governing jurisdiction. Consumer credit facilities are subject to additional regulatory requirements — Truth in Lending Act (US), Consumer Credit Act (UK) — that do not apply to commercial agreements between businesses. Consider consulting a lawyer before execution.

For straightforward bilateral facilities between two businesses with familiar terms, a high-quality template reviewed by counsel is often sufficient. Engage a lawyer when the facility exceeds $500,000, involves cross-border parties, requires complex security over regulated assets, or is part of a broader acquisition or restructuring. A 2–4 hour attorney review typically costs $600–$1,500 and is advisable for any facility where default would have material financial consequences.

A commitment fee is charged on the undrawn portion of the credit limit — typically 0.25–1.00% per annum — compensating the lender for maintaining capital availability even when the borrower is not drawing. It is not legally required but is standard market practice for commercial revolving facilities. Omitting it makes the facility less economically attractive for lenders and may signal an uncommitted or informal arrangement.

Common events of default include failure to pay principal or interest within the grace period (typically 3–5 business days), breach of a financial covenant not cured within 30–45 days, a material misrepresentation in borrower certifications, commencement of insolvency proceedings, a change of control without lender consent, and the occurrence of a material adverse change as defined in the agreement. Hard defaults such as insolvency typically carry no cure period and permit immediate acceleration.

Interest accrues only on the outstanding drawn balance — not on the full commitment amount. The rate may be fixed or floating; floating rates reference a benchmark such as SOFR (USD) plus a negotiated spread in basis points. Interest is calculated on an actual/360 or actual/365 basis depending on market convention and currency, and is typically payable monthly or quarterly in arrears.

The terms are often used interchangeably in practice. A line of credit is the broader commercial concept — a pre-approved borrowing limit. A revolving credit agreement is the formal legal document that governs a line of credit, specifying all terms, covenants, and remedies. All revolving credit agreements establish a line of credit, but not every informal line of credit is documented with a revolving credit agreement of this scope.