Revolving Loan Facility

Definition

Revolving credit is a form of credit issued by financial institutions that allows borrowers to withdraw, repay, and withdraw again. Due to its convenience in repayment and re-borrowing, revolving credit is considered a flexible financing tool. It is not regarded as a term loan because, within a specified period, it allows borrowers to repay or draw again. In contrast, a term loan provides borrowers with funds followed by a fixed repayment schedule.

Origin

The concept of revolving credit originated in the mid-20th century, evolving with the rise of credit cards. Initially, this form of loan was developed to meet consumers' needs for flexible credit, gradually evolving into the widely used line of credit form today.

Categories and Features

Revolving credit is mainly divided into personal revolving credit and business revolving credit. Personal revolving credit typically appears in the form of credit cards, allowing individuals to use funds freely within their credit limit. Business revolving credit provides companies with a flexible way to use funds, helping them meet short-term financial needs. Its main features include high flexibility, interest calculated on the amount used, and no fixed repayment schedule.

Case Studies

A typical example is American Express, which offers credit card services allowing users to spend and repay freely within their credit limit. Another example is Citibank, which provides business revolving loans to small businesses, helping them obtain necessary funds during cash flow difficulties.

Common Issues

Common issues investors face when using revolving credit include interest rate fluctuations, the risk of over-borrowing, and impacts on credit scores. To avoid these problems, borrowers should plan their borrowing limits reasonably, ensure timely repayments, and regularly monitor their credit scores.