Revolving Credit Facility

A revolving credit facility (revolver) is a flexible line of credit that a borrower can draw down, repay, and redraw up to a maximum commitment amount during the facility's term. Unlike a term loan that is fully funded at close and repaid on a fixed schedule, a revolver functions like a corporate credit card — available when needed, repaid when cash flow allows. Interest is charged only on the drawn balance, and an unused commitment fee is typically charged on the undrawn portion.

In M&A, revolvers serve two distinct functions. Pre-close, they may be used as acquisition financing — the buyer draws the revolver to fund part of the purchase price, alongside senior term debt and equity. Post-close, revolvers support the acquired business's working capital needs: funding payroll, purchasing inventory, bridging receivables collections, or smoothing seasonal cash flow variations.

In SMB leveraged buyouts, revolvers are commonly $500K to $3M in size and sit alongside an SBA 7(a) or conventional term loan as the primary acquisition debt. Lenders typically size revolvers at 80%–85% of eligible accounts receivable plus 50%–60% of eligible inventory — an asset-based calculation that ties the facility directly to the collateral value of the business's working capital. As receivables and inventory fluctuate, so does borrowing availability.

Revolvers introduce real cash flow management discipline. Buyers who fund operations from a revolver and let the balance creep up are effectively signaling deteriorating cash flow. A revolver that has been consistently fully drawn for six or more months is a warning sign to lenders and future buyers that the business is not generating adequate free cash flow. Revolvers are intended to be drawn and repaid in cycles — a permanently drawn revolver has become term debt by another name.