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An evergreen loan is a revolving credit facility with no fixed maturity date that automatically renews unless either the borrower or lender takes specific action to terminate it. The credit line stays open indefinitely as long as the borrower meets the agreed conditions and the lender chooses to continue the arrangement. Banks and commercial lenders use them primarily for businesses that need permanent working capital access rather than a time-limited credit line.
Think of it like a renewable subscription rather than a one-time purchase: your access continues as long as both parties are satisfied.
A standard revolving credit facility has a defined maturity date, often three to five years. Both parties know the facility ends on that date unless they negotiate a new agreement. An evergreen loan removes that fixed endpoint. The facility continues indefinitely until one party formally terminates it, typically with 30 to 90 days notice depending on the loan agreement.
Banks may also structure evergreen provisions where the facility automatically extends by one year at each anniversary date unless either party opts out. This evergreen structure is common in large-cap syndicated revolving credit facilities, where major corporations want guaranteed access to a standby liquidity source without negotiating full renewals annually.
Evergreen loans suit businesses with stable, ongoing working capital needs. Seasonal businesses that draw on credit lines at regular intervals every year benefit from not having to renegotiate terms at the end of each multi-year facility. Large corporations use them as backup liquidity alongside their commercial paper programs, knowing a standby revolver exists if the commercial paper market seizes up.
In banking regulation, the term evergreen loan also describes a more problematic pattern: a bank repeatedly renews or extends loans to a distressed borrower to avoid recognizing a loss. Regulators scrutinize this practice because it masks non-performing loans on the bank's balance sheet and delays inevitable credit losses.
Banking supervisors at the Federal Reserve, the Office of the Comptroller of the Currency, and the Federal Deposit Insurance Corporation watch for evergreen loans used to conceal credit problems. A bank that extends a loan rather than recognizing impairment is inflating its reported asset quality. If the pattern is widespread, it understates the institution's true loan loss exposure and allows problem credit to compound before resolution.
Examiners look for loans where the outstanding balance never declines despite years of renewal, where interest is capitalized rather than paid in cash, or where new loans are made to allow the borrower to service old ones. Any of these patterns can trigger adverse classification of the loan and require the bank to increase its loan loss reserves.
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