Creating a Revolving Credit Agreement

Note: Want to skip the guide and go straight to the free templates? No problem - scroll to the bottom.
Also note: This is not legal advice.

Introduction

Creating a Revolving Credit Agreement can be a key factor in the success of any loan. It’s an important document that outlines all the terms, conditions and responsibilities of both the lender and borrower throughout the loan term. By clearly defining these details in a legally binding agreement, both parties can have an understanding of their rights, as well as protecting themselves from any potential disputes or defaulting on payments.

For business owners, lenders and credit managers, understanding and executing a revolving credit agreement correctly is essential to having successful loans. The agreement should detail the rate of interest, repayment plan and other core payment terms - it also outlines what would happen if one party fails to meet their obligations or if changes need to be made to existing terms. A properly executed agreement will provide clarity for both sides before entering into it; this serves to build trust between lender and borrower while laying down a solid framework for repayment and a profitable relationship going forward.

Finally, it’s essential that tax implications associated with the loan are factored into the revolving credit agreement. Depending on its scope, certain taxes or fees may need to be taken into account which are not addressed directly by the contract itself - ensuring they are applied appropriately will help ensure both parties understand their respective liabilities when it comes time pay it off.

At Genie AI we understand how important these documents can be when organising loans - that’s why we’ve developed one of world’s largest open source legal template libraries with millions of data points teaching our AI what market-standard contracts look like. We offer free templates so anyone can draft customised high quality legal documents without paying for expensive lawyer fees: simply pick from our selection available today or get started on building your own! Our step-by-step guide takes you through every element you need for your own document so you can get started now without having to create an account - just read on below for more information!

Definitions (feel free to skip)

Revolving Credit Agreement: An agreement between two parties in which a certain amount of money is borrowed and repaid on a periodic basis with interest.
Purpose: The intention or aim of the agreement.
Interest Rate: The cost of borrowing money, expressed as a percentage of the amount borrowed.
Repayment Terms: The conditions on when and how the loan needs to be repaid.
Due Date: The date on which a payment must be made.
Default: When a borrower fails to make payments according to the agreement.
Governing Law: The set of laws that applies to the agreement.
Signatures: Written authorization from all parties involved in the agreement.
Payment Methods: The ways in which money can be sent to repay a loan.
Reporting Requirements: The information that must be reported and when it must be reported.

Contents

• Defining the purpose of the revolving credit agreement
• Establishing the amount of credit available
• Establishing the interest rate for the loan
• Determining the repayment terms
• Define the frequency of payments
• Define the due date of payments
• Define the total amount to be repaid
• Addressing late payments and fees
• Outlining the consequences of default
• Specifying the duration of the agreement
• Define the start date
• Define the end date
• Identifying the governing law
• Providing the necessary signatures
• Obtaining signatures from all parties
• Establishing the payment methods
• Define the acceptable methods of payment
• Define the address/mechanism for submitting payments
• Establishing the reporting requirements
• Establish any reporting requirements for the parties
• Finalizing and executing the document
• Prepare a draft of the document
• Review the document
• Execute the document

Get started

Defining the purpose of the revolving credit agreement

• Determine the purpose of the revolving credit agreement.
• Write out a clear and concise explanation of the purpose of the agreement.
• Ensure the purpose of the agreement is in line with the expectations of both parties.
• Once the purpose has been agreed upon, it can be included in the agreement.
• You will know when this task is complete when the purpose of the agreement has been set out and agreed upon by both parties.

Establishing the amount of credit available

• Consult with both parties to set the amount of credit available for the loan
• The amount should be enough to cover the purpose of the revolving credit agreement as discussed in the previous step
• The amount should also be reasonable based on the capacity of the borrower to pay back the loan
• Once the amount has been agreed upon by both parties, the terms should be documented in writing
• Once the amount has been set, you can move on to the next step, which is establishing the interest rate for the loan.

Establishing the interest rate for the loan

• Calculate the average prime rate from the last 6 months
• Research the rate offered by other lenders for similar loans
• Consider what rate the borrower can reasonably afford
• Determine an appropriate interest rate
• Include the details of the interest rate in the loan agreement
• Once the interest rate has been established and included in the agreement, you can check this off your list and move on to the next step - determining the repayment terms.

Determining the repayment terms

• Calculate the total amount of the loan and the total number of payments that must be made.
• Determine the amount of each payment and how frequently payments will be due (e.g. weekly, monthly, etc.).
• Decide on the repayment schedule and whether payments will be made on a fixed or variable basis.
• Consider the consequences of late payments and decide what action should be taken in the event of a late payment.
• Set the due date for each payment and include this information in the credit agreement.

How you’ll know when you can check this off your list and move on to the next step:
Once you have completed the steps above, you should have a clear understanding of the repayment terms and can move on to defining the frequency of payments.

Define the frequency of payments

• Define how often payments need to be made (monthly, quarterly, etc.)
• Outline the date each payment is due
• Make sure the payments are evenly spaced throughout the year
• Once the payment schedule is established, you can move on to the next step.

Define the due date of payments

• Research the applicable state laws and regulations to determine the maximum due date for payments
• Discuss the due dates with the other parties involved and determine a reasonable due date acceptable to all parties
• Include the agreed upon due date in the credit agreement
• Once the due date is agreed upon and included in the credit agreement, you can check this step off your list and move on to the next step.

Define the total amount to be repaid

• Take into account all the payments and amounts that have been previously agreed upon by both parties
• Establish an exact figure for the total amount to be repaid
• Include this information in the agreement
• Make sure to include any interest or fees that may be applied
• Once you have established the total amount to be repaid, you can move on to the next step.

Addressing late payments and fees

• Determine the fees associated with late payments, such as interest rate penalty, late fees, and any other charges
• Specify how the fees will be calculated in the agreement
• Outline when late payments will be considered late, and how they will be addressed
• Identify the consequences if a payment is not received by the due date
• Include the details of any grace period for the payment
• When you have determined the fees, interest rate penalty, late fees, and other charges associated with late payments, checked that the details are all outlined in the agreement, and specified the consequences for not making a payment on time, you can check this step off your list and move on to the next step.

Outlining the consequences of default

• Identify the consequences for the borrower in the event of a default.
• Include details such as any late fees or penalties, collection costs, and other stipulations to be enforced in the event of default.
• Draft a clause that covers the consequences of default and include it in the credit agreement.
• Ensure that the clause is legally binding and enforceable.

Once you have identified the consequences for the borrower in the event of a default, drafted a clause that covers the consequences of default and included it in the credit agreement, and ensured that the clause is legally binding and enforceable, you can check this off your list and move on to the next step of specifying the duration of the agreement.

Specifying the duration of the agreement

• Outline the length of the agreement and when it begins and ends
• If the agreement is renewable, specify the length of each renewal period
• Make sure to note any pre-payment consequences
• Signatures from all parties are required to confirm the duration of the agreement
• When all parties have signed, this step is complete and you can move on to the next step.

Define the start date

• Determine when the revolving credit agreement will become effective
• Record the start date in the agreement
• Get the agreement signed by all parties involved
• Once all of the above steps have been completed, the start date has been defined and you can move on to the next step.

Define the end date

• Identify the date in which the revolving credit agreement will end
• Research applicable state laws to ensure that the end date complies with all regulatory guidelines
• Include the proposed end date in the agreement
• The end date should be clearly identified in the agreement and agreed upon by both parties
• Once both parties have agreed to the end date, you can check this off your list and move on to the next step.

Identifying the governing law

• Check the laws of the state in which the agreement was created, and determine the applicable governing law
• Consider any additional applicable laws, such as federal laws, that may also apply
• Include the applicable governing law in the agreement language
• Once you have identified the applicable governing law and included it in the agreement, you can move on to the next step of providing the necessary signatures

Providing the necessary signatures

• Obtain a signature from each party in the agreement
• Ensure that any necessary witness signatures are also obtained
• Make sure that all documents are properly dated
• All documents should be signed in the presence of a Notary Public, if applicable
• Check that all signatures are correctly completed and that all parties have signed all documents
• You will know that you have completed this step when all documents have been signed and dated.

Obtaining signatures from all parties

• Have all parties involved in the agreement sign the document with a notary present.
• Make sure the signatures are witnessed and notarized.
• Once all parties have signed the document, you can check this off your list and move on to establishing the payment methods.

Establishing the payment methods

• Decide on what forms of payment are acceptable for the revolving credit agreement, such as check, cash, or electronic payments
• Include the payment methods in the agreement, as well as any associated fees
• Confirm that both parties agree to the payment methods and fees as outlined in the agreement
• When both parties have agreed to the payment methods and fees, you can check this step off your list and move on to the next step.

Define the acceptable methods of payment

• Specify the acceptable methods of payment for the revolving credit agreement, such as cash, credit card, check, or wire transfer.
• Include all the details for the payment methods in the agreement, such as the address where payments should be sent, the bank account information for wire transfers, etc.
• When you have all the payment details and method specified in the agreement, you can check this step off your list and move on to defining the address/mechanism for submitting payments.

Define the address/mechanism for submitting payments

• Determine the physical address and mechanism for submitting payments (e.g. mailing address, online payment system, etc.)
• Document the address and payment mechanisms in the agreement
• Ensure the agreement clearly states any fees associated with late payments or returned payments
• Ensure the agreement provides contact information for questions and concerns
• Once the address and payment mechanisms have been established and documented in the agreement, the step can be checked off the list and the next step (## Establishing the reporting requirements) can be completed.

Establishing the reporting requirements

• Identify what kind of reports need to be provided by both parties
• Determine the frequency of reporting (monthly, quarterly, etc.)
• Agree on what information needs to be included in the reports
• Set deadlines for when the reports need to be submitted
• Determine how the reports will be submitted (electronically, in-person, etc.)
• Outline any consequences for late or incomplete reports
• Review the reporting requirements with both parties to ensure understanding
• Record the reporting requirements in the revolving credit agreement

Once you have recorded the reporting requirements in the revolving credit agreement, you can check this step off your list and move on to the next step.

Establish any reporting requirements for the parties

• Establish what type of reporting requirements the parties involved in the agreement must follow, such as the frequency of reporting, the specifics of the reporting, and any other requirements both parties must adhere to
• Determine if there are any reporting requirements that must be met to maintain the agreement
• Identify any specific information that must be included in the reporting, such as financial data, sales data, and any other information needed to track performance
• Create a timeline for when each report must be delivered
• Specify who is responsible for delivering the reports and how they will be delivered
• When all of the reporting requirements have been established, you can move on to the next step.

Finalizing and executing the document

• Review the document to ensure all information is accurate and up-to-date
• Have both parties sign the document
• File the document with the appropriate state or federal agency, if necessary
• Both parties should be given a copy of the signed document
• When all the steps are completed and the document is signed, the revolving credit agreement is in effect and can be used.

Prepare a draft of the document

• Gather all the necessary information, such as the borrower’s name, the lender’s name, the loan amount, and the repayment terms
• Create a document with the information above and include any additional details or clauses that need to be included in the agreement
• Double-check the details to make sure everything is accurate and up-to-date
• When you are satisfied with the document, you have completed this step and can now move on to the next step, which is to review the document.

Review the document

• Carefully read the document to ensure all information is accurate
• Look for any typos or errors
• Make any necessary changes to the document
• Have the parties involved sign the document
• Have the document notarized
• Check that the document is legally compliant
• Once all the above steps have been completed, the document is ready to be executed.

Execute the document

• Have both parties sign the agreement
• Ensure each party has a copy of the signed agreement
• Notify each party that the agreement has been executed
• Record the dated signature of each party
• File the executed agreement in a secure location
• You will know this step is complete when all parties have signed and each has a copy of the agreement.

FAQ:

Q: Thomas, What is the difference between a revolving credit agreement and a loan?

Asked by Thomas on 12th January 2022.
A: A revolving credit agreement is a type of loan that allows you to take out a loan up to a certain limit and then repay it with interest as you make payments. It is different from a traditional loan in that the amount of money available to borrow is not fixed; instead, it can be adjusted up or down depending on your needs. This type of loan is typically used for short-term borrowing needs, such as for home improvements or for a business venture. A loan, on the other hand, is typically used for longer-term financing needs, such as for buying a car or a house.

Q: Jordan, Are there any specific terms and conditions I should be aware of when creating a revolving credit agreement?

Asked by Jordan on 4th February 2022.
A: Yes, there are certain terms and conditions that must be met in order to create a revolving credit agreement. These terms are typically outlined in the contract signed between lender and borrower. These include the amount of money borrowed, the interest rate, repayment schedule, and other fees or charges associated with the loan. Additionally, lenders may require borrowers to provide collateral or guarantee the loan in order to reduce the risk of default. It’s important to fully understand all the terms and conditions included in the agreement before signing anything.

Q: Isabella, How do I know if I need a revolving credit agreement?

Asked by Isabella on 2nd April 2022.
A: A revolving credit agreement may be beneficial if you need funds for short-term financing but don’t have access to other sources of financing such as traditional loans. It can also be useful if you require more flexibility than what is offered with traditional loans. Additionally, if you don’t have enough equity built up in your business or home to use as collateral for a loan, a revolving credit agreement may be an ideal solution since it doesn’t require any form of collateral or guarantee. Ultimately, you need to assess your own financial situation and decide if this type of financing is right for you.

Q: Lucas, What types of businesses typically use revolving credit agreements?

Asked by Lucas on 16th May 2022.
A: Revolving credit agreements are typically used by companies that require short-term funding but don’t have access to traditional sources of financing such as bank loans or other forms of debt financing. This type of financing is often used by start-up companies that need working capital but don’t qualify for traditional loans due to lack of collateral or other factors. Additionally, businesses that have fluctuating cash flows may benefit from having access to this type of funding since it allows them to borrow money when needed without having to go through lengthy approval processes associated with traditional forms of financing.

Q: Emma, Are there any legal considerations I should be aware of when creating a revolving credit agreement?

Asked by Emma on 25th June 2022.
A: Yes, there are certain legal considerations you should be aware of when creating a revolving credit agreement. Depending on where you are located and which jurisdiction applies to your agreement, there may be different laws governing your agreement which could impact how it’s structured and enforced. Additionally, depending on where you are located there may also be restrictions on who can serve as guarantors or creditors in your agreement and what types of repayment schedules are allowed. It’s important to familiarize yourself with any laws pertaining to revolving credit agreements in your area before entering into one.

Q: Mason, Does my industry matter when creating a revolving credit agreement?

Asked by Mason on 10th August 2022.
A: Depending on your industry it may make sense to structure your revolving credit agreement differently than one created for another industry due to unique considerations related to that industry such as cash flow cycles and typical customer payment terms. Additionally, certain industries may have regulations or laws governing how their agreements must be structured which could impact how your agreement is structured as well. It’s important to do research into any applicable regulations before entering into an agreement so that you can ensure compliance with any relevant laws or regulations.

Example dispute

Suing Over a Revolving Credit Agreement

• A plaintiff may bring a lawsuit against a company who has violated the terms of a revolving credit agreement.
• The plaintiff must be able to prove that the company has breached the terms of the agreement, such as failing to make payments or failing to honor the terms of the contract.
• The lawsuit must also provide evidence of the damages incurred as a result of the breach of contract.
• Depending on the case, these damages may include lost profits, attorney’s fees, and other costs associated with the breach.
• A successful suit may result in a court order requiring the company to pay damages or to meet the terms of the original agreement.
• The court may also order the company to pay the plaintiff’s legal fees if the plaintiff is successful in the lawsuit.

Templates available (free to use)

Helpful? Want to know more? Message me on Linkedin