How an RCF works
A revolving credit facility gives you a committed limit for a set period — commonly three to five years — that you can draw down, repay and draw again as often as you need. Unlike an overdraft, it is contractually committed for the term rather than repayable on demand, which is why treasurers value it as standby liquidity.
Drawings are usually made for interest periods of one, three or six months and roll over unless repaid. Interest accrues only on amounts actually drawn.
What it costs
Three components: an arrangement fee payable up front, a margin over a reference rate on drawn balances, and a commitment fee — typically a third to a half of the margin — on the undrawn portion. Utilisation fees may step the margin up at higher usage levels.
The commitment fee is what makes an oversized facility expensive. Size the limit to peak need plus a sensible buffer, not to the largest number the lender will approve.
Covenants and clean-down
Expect quarterly financial covenants: leverage, interest cover and sometimes a minimum liquidity or cash-flow cover test. Breaching one gives the lender the right to withdraw the facility, so model covenant headroom against a downside case before signing, not only against your plan.
Many facilities include a clean-down requirement — the balance must fall to zero, or to a stated level, for a continuous period each year. It exists to confirm the line funds seasonal working capital rather than a permanent structural deficit, and it needs to be planned into your cash-flow.
RCF, term loan or invoice finance?
A term loan suits a known one-off cost with a defined repayment profile. An RCF suits fluctuating, unpredictable working capital where the balance moves through the month. Invoice finance suits a business whose cash gap is specifically the delay between invoicing and payment, and it scales automatically with sales where an RCF limit does not.
Many mid-market businesses run a term loan for investment and an RCF for volatility, with the security position agreed between lenders at the outset.
What lenders need
Two to three years of accounts, current management information, a 12–18 month cash-flow forecast that demonstrates why the peak requirement is what it is, details of existing debt and security, and group structure where relevant.
The forecast matters more here than in most applications: an RCF is underwritten on the shape of your working capital cycle, not just its size. Global Funding Gateway prepares that case and approaches lenders active in your sector and jurisdiction, with no upfront fees.
Frequently asked questions
What is the difference between an RCF and an overdraft?
An overdraft is typically repayable on demand and reviewed annually. An RCF is committed for a fixed term with agreed covenants, so the lender cannot simply withdraw it while you comply.
Do I pay for an RCF if I never draw it?
Yes — a commitment fee applies to the undrawn portion, plus the up-front arrangement fee. That is the price of having committed liquidity available on demand.
What is a clean-down period?
A requirement to reduce the facility to zero or an agreed level for a continuous period, usually once a year, proving the line funds seasonal swings rather than a permanent funding gap.
Last reviewed: 2026-08-15