Also known as:revolving loans · revolver · revolving credit facility
Written by attorneys · grounded in primary & secondary sources — see below
A sum of money lent at interest that permits the borrower to draw funds, repay them, and redraw up to a specified limit on a continuing basis. The arrangement functions as an open line of credit rather than a single fixed advance, with interest typically accruing only on the outstanding balance at any given time.
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How it applies
Common Examples
2
Partnership Admission and Pre-Admission Draws
Prairie Cars, a general partnership, maintained a revolving loan with Valley Motors Corporation to purchase repair parts. Before Catherine joined as a partner, the firm had drawn repeatedly and accumulated a $75,000 overdue balance. After her admission the partnership placed new orders on the same account, and Valley Motors later sued Catherine personally for the entire balance. The court held Catherine not personally liable for the pre-admission portion because that debt had been incurred before she became a partner.
Limited Partnership Distribution Decision
CloudGuard LP held an undrawn revolving loan facility from Alpha Tech. The general partner proposed a cash distribution to limited partners while the partnership faced near-term payroll and vendor obligations. Joe, a limited partner, sought to enjoin the distribution. The court permitted the distribution because the undrawn facility supplied a reasonable basis to conclude the partnership could pay its debts as they come due.
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Test Yourself
10
Practice Questions5
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Restatements
Hornbooks
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Common questions
Frequently Asked
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How does a revolving loan differ from a term loan in commercial practice?+
A revolving loan allows repeated draws and repayments up to a credit limit, with interest charged only on the outstanding balance. A term loan provides a single fixed sum repaid on a schedule. The revolving structure suits ongoing inventory or working-capital needs where the debtor's borrowing fluctuates.
Supporting sources
Is an incoming partner personally liable for pre-admission draws on a partnership's revolving loan?+
No. A person who becomes a partner is not personally liable for partnership obligations incurred before admission. Pre-admission draws on a revolving facility count as pre-admission debt even if the account remains active after the new partner joins.
Supporting sources
May a limited partnership make a distribution when it holds an undrawn revolving credit facility?+
Yes, provided the facility supplies a reasonable basis to conclude the partnership can pay its debts as they come due. The statute permits reliance on available credit lines when assessing solvency for distribution purposes.
Supporting sources
Does failure to observe formalities in a limited partnership expose limited partners to personal liability on a revolving loan?+
No. Modern limited partnership statutes provide that failure to observe formalities is not a ground for imposing personal liability on limited partners for partnership obligations, including those arising under a revolving credit facility.
Supporting sources
Criminal Law Constitutional ProtectionsStatutory crimes · Homicide (including felony murder)NEXTGENIntermediate