A revolving credit agreement is a legally binding contract between two parties in which one party agrees to extend a line of credit to another party. This agreement can between any two parties involved in business such as a bank and a company wherein the bank agrees to extend cash credit to the company or a buyer and a seller wherein the seller agrees to extend credit for any particular good or service to the buyer.
In this case generally the party availing credit has to incur a commitment fee and then is allowed to use the credit when needed. A well drafted and impartial revolving credit agreement clearly articulates the terms and conditions of the credit as well as aims at protecting the interest of both the debtor and creditor. As this facility involves financial transactions adequate care should be taken while negotiating and documenting the agreement on terms such as amount of loan, repayment plan and term, interest rates, any penalty clause and grievance redressing mechanism. Once the agreement is finalized both the parties should follow it in letter and spirit to maintain cordial and long term business relations.
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