What is an Evergreen Loan?

An evergreen loan is a revolving line of credit that does not require the borrower to pay down the outstanding balance at any point prior to the maturity date of the loan. Evergreen loans are especially useful for borrowers that do not have the financial resources to pay down loan balances on a regular basis. They are more risky for the lender, who must wait until the maturity date to receive a paydown. Given the increased riskiness of these loans, they usually have a higher interest rate associated with them.

Examples of Evergreen Loans

Here are several examples of evergreen loans:

Home equity line of credit (HELOC). A homeowner takes out a HELOC, allowing them to borrow against the equity in their home. The loan has a revolving credit feature, meaning the homeowner can borrow and repay the funds as needed. As long as they make the required interest payments, they can continue using the credit line.
Personal line of credit. An individual takes out a personal line of credit, which functions like a credit card without an expiration date. The borrower can continue to borrow, repay, and borrow again as long as they stay within the credit limit and pay the interest.
Trade credit. A supplier offers an evergreen trade credit to a business customer, allowing them to order goods without paying upfront. The customer pays interest on outstanding balances while continuing to make purchases. The loan balance is extended indefinitely as long as interest is paid.
Working capital loan. A company takes out an evergreen loan to maintain day-to-day operations, such as paying employees, purchasing inventory, or covering operational costs. The company is required to pay only the interest regularly, and the loan principal remains available for use.

Evergreen Loan Statements

When a lender and borrower enter into an evergreen loan arrangement, the lender sends the borrower a monthly statement of loan activity, along with a payment remittance form on which is stated the minimum monthly payment needed to keep the account current. If the borrower does not pay this minimum amount, then the lender has the option to close down the lending arrangement.