Why an evergreen loan matters to a first-time founder
Continuing credit can smooth working-capital needs because the borrower does not negotiate a new loan for every drawdown. The risk is treating it as permanent capital. A lender may review, reduce or cancel the facility under its terms, leaving the company exposed if it cannot repay or refinance.
Examples of evergreen loans
A retailer has a £100,000 evergreen credit facility and draws £40,000 before its busy season. It pays interest monthly and repays £25,000 after customers pay. The remaining limit becomes available again, but the bank reviews the facility annually and can require changes if the retailer breaches its financial conditions.
Common misunderstanding
An evergreen loan is not guaranteed to continue forever and is not automatically interest-only. The agreement controls repayments, reviews, termination and redraws. It is often revolving credit, but terminology varies by lender and jurisdiction. Founders should read the facility terms rather than infer rights from “evergreen”.
When to use it
Use one for recurring, short-term cash needs when expected receipts provide a credible repayment source. Track renewal reviews, conditions and the lender’s cancellation rights. Do not use withdrawable short-term credit to fund losses or long-lived assets unless the company can withstand the facility ending unexpectedly.