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Revolving credit is a type of credit that does not have a fixed number of payments, in contrast to installment credit. Credit cards are an example of revolving credit used by consumers. Corporate revolving credit facilities are typically used to provide liquidity for a company's day-to-day operations.
A revolving credit line allows borrowers to draw down, repay and reborrow as often as necessary. The facility acts much like a corporate credit card, except that borrowers are charged an annual commitment fee on unused amounts, which drives up the overall cost of borrowing (the facility fee).
Categorizing loan agreements by type of facility usually results in two primary categories: term loans, which are repaid in set installments over the term, or revolving loans (or overdrafts ) where up to a maximum amount can be withdrawn at any time, and interest is paid from month to month on the drawn amount.
In a revolving credit facility, the occurrence of an event of default normally also allows the lender to cancel any obligations to make further loan advances. There are three types of event of default: payment default, i.e. the failure to pay principal or interest when it falls due for payment;
When rates rise, the total amount of debt you pay on any new debt increases. When interest rates fall, you pay less. Interest rate changes: short-term vs. long-term debt
Borrowing base of financial institutions who themselves apply for asset-based revolving loans is calculated by summing up all tangible working assets (typically cash, bonds, stocks, etc.) and subtracting from it all senior debt, i.e. all other accumulated debt that does not rank behind other debt for repayment in the event of a liquidation. [24]
In practice, this length of time is generally between 10-20 days. Warehouse facilities typically limit the amount of dwell time a loan can be on the warehouse line. For loans going over dwell, mortgage bankers are often forced to buy these notes off the line with their own cash in anticipation of a potential problem with the note.
On September 14, 2008, in the wake of the collapse of Lehman Brothers, the Federal Reserve announced plans to expand the collateral eligible at the PDCF to include all collateral eligible in tri-party repurchase agreements with the major clearing banks. [9] Originally, only investment-grade debt securities were accepted as collateral through ...