A loan facility which permits the Borrower to make multiple withdrawals and multiple repayments according to his convenience provided the outstanding balance stays within the approved limit is referred to as a revolving loan. This form of loan is convenient and beneficial for those borrowers who have uncertain cash flows. The terms give the borrowers flexibility to draw down or pay back the loan depending upon whether they are cash deficit or cash surplus. Cash credit and overdraft are examples of revolving loans.
There is no repayment schedule for the facility but it is usually sanctioned for a specific period of time. Upon expiry of the prescribed period, the revolving loan is required to be renewed. In the event that the lender decides not to renew the facility, the Borrower will be called upon the pay the balance outstanding of the loan together with interest. These loans are also ordinarily subject to a condition that they are repayable on demand. Such demand is, however, normally made by the lender only in case of irregularity in the account or contract violations.