Revolving credit facilities: how draws, fees and covenants work
Learn how a revolving credit facility works, the terms that set its cost, such as commitment fees and minimum utilization, and how stablecoin draws and repayments change the mechanics.
A revolving credit facility lets a business draw, repay and draw again up to a set limit. It is the standard tool for funding needs that rise and fall, such as payouts, receivables or a loan book. This guide explains the terms that drive its cost and how stablecoin draws and repayments change the mechanics.
A credit facility is any agreement under which a lender makes credit available to a borrower. In a term loan, the business receives a fixed amount and repays it over time. In a revolving facility, the business borrows only what it needs, when it needs it, up to a limit called the commitment.
Key terms
| Term | What it means |
|---|---|
| Commitment | The maximum the lender agrees to make available |
| Borrowing base | A limit tied to eligible assets, such as receivables |
| Advance rate | The share of eligible assets the lender will fund, such as 85% |
| Commitment fee | A fee on the undrawn part of the commitment |
| Minimum utilization | A required minimum drawn balance |
| Draw notice | How far in advance the borrower must request funds |
| Covenants | Financial and operating conditions the borrower must meet |
Where facility terms cost borrowers
The rate on drawn funds gets most of the attention, but the other terms decide whether a facility fits how the business uses cash.
A minimum utilization requirement means the borrower pays interest on money it may not need. A business with seasonal or lumpy needs can end up carrying a large drawn balance just to meet the minimum. Draw notices and bank funding hours mean money arrives on the lender's schedule, not when a payout or purchase is due. Concentration limits and eligibility criteria can leave part of a borrower's receivables or loan book unfunded.
Revolving facilities on stablecoin rails
When a facility is funded and repaid in stablecoins, draws and repayments settle near-instantly, 24/7. A payment company can draw on a Saturday to fund payouts and repay when collections land on Monday. This is how prefunding lines and receivables financing facilities can follow the business's actual cash cycle.
Repaying as soon as cash arrives also shrinks the drawn balance faster. Fees, minimum utilization and other terms are still set by each lender. Transfer memos can tie each draw and repayment to an invoice, payout batch or loan, which simplifies reconciliation for both sides.
Businesses that prefer not to hold stablecoins can work with ramp partners to receive draws and repay in dollars. Bank transfers still follow banking hours.
FAQ
What is a revolving credit facility?
A revolving credit facility lets a business borrow up to an agreed limit, repay, and borrow again during the facility's term. Interest is charged on the amount drawn, and a fee is often charged on the unused portion.
What is the difference between a revolving credit facility and a term loan?
A term loan provides a fixed amount, usually drawn once and repaid on a schedule. A revolving facility can be drawn and repaid repeatedly up to its limit, which suits needs that rise and fall.
What is a minimum utilization requirement?
Some facilities require the borrower to keep a minimum amount drawn, or to pay as if it had. It protects the lender's return but means the borrower can pay for capital it is not using.
Explore credit on Tempo
Stablecoins let credit move like a payment: funded, drawn and repaid at any hour, with each transfer tied to its loan. If you lend to or borrow from payment and lending companies, get in touch to see how that works on Tempo.