Which statement best describes revolving credit facilities compared with term loans?

• A. Revolving lines offer fixed amounts with a set maturity; term loans provide ongoing access with flexible usage.
• B. Revolving lines are shorter-term than term loans but provide the same features.
• C. Revolving lines offer ongoing access with flexible usage; term loans provide a fixed amount with a set maturity.
• D. Revolving lines have stricter covenants than term loans in all cases.

Answer: (D)

The main idea is the difference in how you access funds and how you repay. Revolving lines give ongoing access to funds up to a specified limit, with the ability to borrow, repay, and re-borrow as needed during the facility’s term. You pay interest only on what you actually borrow, and you can use the funds flexibly as business needs change. A term loan, on the other hand, provides a fixed amount borrowed at the start and a set maturity with a scheduled repayment plan or a single bullet payment at the end; you don’t have the same built-in flexibility to re-borrow once repaid.

Covenants aren’t universally stricter for revolvers; the level of covenant tightness depends on the specific agreement, borrower risk, and negotiation. Some revolvers may have tighter covenants, but it’s not a universal rule across all cases.

So the statement that best describes them is that revolving lines offer ongoing access with flexible usage, while term loans provide a fixed amount with a set maturity.