The difference between a DDTL and a revolver comes down to what happens when you repay: a revolving credit facility lets you borrow, pay down, and borrow again up to a fixed limit, while a delayed draw term loan gives you a one-time pool of committed capital that permanently shrinks every time you repay principal. That single mechanical distinction drives almost everything else that separates the two instruments, from pricing and fees to prepayment penalties and the job each one is built to do. Most mid-market and large companies don’t pick between them. They negotiate both as separate tranches inside the same senior secured credit agreement, each sized for a different purpose.1U.S. Securities and Exchange Commission. Amendment No. 2 to Credit Agreement
The Reborrowing Rule That Separates Them
On a revolver, every dollar of principal you repay restores a dollar of borrowing capacity. Pay down $10 million today and you can draw that same $10 million next week. The limit resets with each repayment, up to the original commitment, for the life of the facility. Many companies run cash sweeps that apply excess operating cash to the revolver balance overnight, keeping interest costs down while preserving instant access to the full line.
A DDTL does not work that way. Every principal payment permanently reduces the lender’s commitment. Draw $50 million from a $100 million DDTL, repay $20 million, and your outstanding balance drops to $30 million with no right to redraw the $20 million you returned. Once the availability period closes or the full commitment has been drawn, the DDTL typically converts into a standard amortizing term loan with scheduled principal and interest payments through maturity.2U.S. Securities and Exchange Commission. SelectQuote, Inc. – Second Amendment to Credit Agreement
If you remember nothing else about the comparison, remember this one. Nearly every other difference flows from it.
How Fast You Can Access the Money
Revolvers are built for speed. A borrower sends a draw notice and the funds show up. Many syndicated revolvers include a swingline sub-facility for same-day or next-day funding of smaller amounts, operating as a convenience loan inside the broader commitment.3U.S. Securities and Exchange Commission. Credit Agreement – Revolving Credit Facility In asset-based facilities, availability on any given day is set by a borrowing base certificate that applies advance rates to eligible receivables and inventory, so the number can move even when the commitment stays flat.
DDTLs run on a slower timeline. The capital sits reserved during a defined availability period, and each draw has to clear a set of conditions precedent before the lender releases funds. The borrower typically must certify that no event of default exists, that key representations remain accurate, that the proposed use falls within the agreement’s permitted purposes, and that the draw won’t push leverage above the closing level on a pro-forma basis. Some agreements also require any senior funded term loan to be fully drawn before the DDTL can be tapped, and lenders may impose minimum draw amounts to avoid processing small requests.
That difference matters when picking an instrument for a specific job. A revolver can cover a surprise cash shortfall this afternoon. A DDTL cannot.
What Each One Costs When It’s Idle
Keeping committed capital available costs money even when you don’t use it. Both instruments charge for undrawn balances, but through different mechanisms.
Revolver Commitment Fees
A revolving facility charges a commitment fee (sometimes called an unused line fee) on the average daily undrawn portion of the commitment, billed quarterly.4U.S. Securities and Exchange Commission. Third Amendment to Borrowing Base Revolving Line of Credit Agreement Rates vary by deal but commonly land in the range of 25 to 50 basis points annually. Some agreements use a tiered structure where the fee drops as utilization rises.
DDTL Ticking Fees
A DDTL uses a ticking fee, which compensates the lender for holding capital in reserve during the availability period. The ticking fee often starts accruing after a short holiday period following closing, and the rate may step up over time to push the borrower toward either drawing or releasing the commitment. Once the DDTL is fully drawn, the ticking fee stops and the borrower pays interest on the outstanding balance. Leaving a DDTL undrawn for a long stretch gets expensive.
How the IRS Treats These Fees
The tax treatment is not symmetric, and the gap can matter at scale. Unused commitment fees on a revolver are generally deductible as ordinary business expenses under Section 162 of the Internal Revenue Code; the IRS has confirmed this treatment on the theory that fees tied to unused capacity don’t produce significant future benefits.5Internal Revenue Service. IRS Memorandum on Commitment Fees
When a commitment fee is paid to acquire the right to borrow and that right is exercised, as happens with a DDTL draw, the fee changes character. It becomes a cost of acquiring the loan and must be deducted ratably over the loan’s term rather than expensed up front.5Internal Revenue Service. IRS Memorandum on Commitment Fees If the DDTL is never drawn, the borrower may be entitled to a loss deduction when the commitment period expires. Characterizing a fee as a business expense rather than interest expense also helps avoid the limitation on business interest deductions, which caps the annual deduction at 30% of adjusted taxable income for most taxpayers.6Office of the Law Revision Counsel. 26 U.S. Code 163 – Interest
Interest Rates and Credit Spreads
Both instruments price off a floating-rate benchmark, almost universally Term SOFR (Secured Overnight Financing Rate) since the transition away from LIBOR. The rate equals the benchmark plus a credit spread tied to the borrower’s risk profile, and the spread is where the two instruments differ.
Revolvers tend to carry a slightly lower spread than term loan tranches, including DDTLs. The logic is straightforward. A revolver is shorter-duration capital that the bank expects to cycle in and out. A DDTL, once drawn, sits on the lender’s balance sheet more like a traditional term loan, and lenders price that longer-duration commitment accordingly. The exact gap depends on credit quality, market conditions, and how the overall facility is negotiated, but a borrower should expect to pay somewhat more in spread on DDTL draws than on revolver draws.
Prepayment Penalties
Revolvers carry no prepayment penalty. The whole point is to cycle principal in and out, so lenders don’t charge for paying down the balance. A borrower can reduce the outstanding to zero any business day and draw again the next.
DDTLs are different. Once drawn, DDTL balances often carry call protection, meaning the borrower pays a premium for early repayment during the first one to two years. The most common structure in private credit uses a simple declining premium: 102 (a 2% premium on the prepaid principal) in year one, 101 in year two, no premium after that. A smaller share of deals use make-whole provisions that compensate the lender for lost future interest. One detail to watch: the call protection period can run from the original closing date of the credit agreement, not from the date the DDTL was actually drawn. The clock on the prepayment penalty may already be ticking before the borrower takes a dollar.
Covenants and Ongoing Compliance
The covenant package depends on whether the deal is broadly syndicated or a private credit transaction, and that in turn affects how each instrument feels to live with. Broadly syndicated leveraged loans have largely moved to “covenant-lite” structures that use incurrence-based covenants: the borrower faces compliance testing only when it takes a specific action like raising new debt or paying a dividend. Performance can slip without tripping a covenant as long as no triggering action occurs.
Private credit deals, where DDTLs originated and remain common, typically keep maintenance covenants that require passing financial tests every quarter regardless of whether the borrower has done anything. A declining leverage ratio or a missed coverage test triggers a violation automatically. For a DDTL specifically, the conditions precedent to each draw function as an extra compliance checkpoint on top of the regular covenant tests. A borrower cannot simply send a draw notice; it has to demonstrate that leverage hasn’t exceeded the agreed threshold on a pro-forma basis, that no default exists, and that the intended use is permitted.
Which Instrument Fits Which Job
The real question isn’t DDTL versus revolver. It’s matching each instrument to the right job in your capital structure.
Revolvers exist for short-term, recurring liquidity needs: covering payroll in a slow revenue month, funding a seasonal inventory build, bridging the gap between invoicing and collection. The ability to draw, repay, and redraw at low commitment fees makes them the right tool for working capital management. They are not meant to fund acquisitions or permanent capital needs.
DDTLs exist for identified but not-yet-executed strategic transactions. A private equity sponsor that closes a platform acquisition and expects to pursue add-ons over the next 12 to 24 months secures a DDTL at closing and draws against it as targets materialize, rather than negotiating a new loan for each deal. DDTLs also fund large capital expenditure programs and, increasingly, debt repayment. The trade-off is less flexibility: ticking fees accrue while the capital waits, each draw has to clear conditions precedent, and once principal is repaid, that capacity is gone.
Companies that confuse the two run into predictable problems. Funding an acquisition out of the revolver locks up the working capital backstop against long-term debt. Using a DDTL for routine cash management means paying higher spreads and ticking fees for capital that would have been cheaper on the revolver. The instruments are designed to complement each other, which is why most well-structured credit facilities include both.