Revolving line of credit

Definition

A credit line the business draws on and repays as its cash swings.

Why It Matters

An acquisition loan buys the business; it does not fund the weeks when payroll lands before the receivables do. The revolver is the instrument that covers that gap, and it is arranged at the close or not at all, because a lender's appetite is never higher than the day it underwrote you. Ask what the limit is, what formula sizes it, and whether the bank has committed to it or may cancel at its own discretion. A buyer who skips it funds the swing out of the equity they were going to live on.

In numbers: A business collecting in sixty days and paying in thirty carries about a month of costs in the gap, so on $2.4M of annual costs that is $200,000 the line has to cover.