Revolving credit facility

An acquisition term loan and a revolving facility solve different problems and are usually arranged separately, even when the same lender provides both. The term loan funds the purchase itself and amortizes on a fixed schedule; the revolver funds the ongoing gap between paying suppliers and payroll and collecting from customers, and it is meant to be drawn down and paid back repeatedly over the life of the relationship.

What determines the available limit

A revolver’s limit is sometimes a flat amount set at underwriting and sometimes tied to a borrowing base that moves with current receivables and inventory, the same mechanic used in asset-based lending. Either way, the available limit is not necessarily what is actually drawn at any given time — undrawn availability is part of what a lender is assessing when it reviews the facility.

Why it matters on an acquisition

• An existing revolving facility does not automatically transfer to a buyer — it is generally repaid and replaced at closing, or renegotiated with the buyer as the new borrower
• A buyer who plans only for the term loan and ignores the working capital facility can find the business short of cash in its first weeks, even with the acquisition itself fully funded
• Seasonal businesses in particular rely on the revolver expanding and contracting through the year, which is a different underwriting question than the term loan

What commonly gets missed

Buyers modelling total financing needs sometimes focus entirely on the purchase price and overlook that day-one working capital, funded through a revolver or equivalent facility, is a separate financing requirement layered on top of it — one that still needs to be arranged, underwritten and available at closing.