An accordion feature is a clause in a credit agreement that lets the borrower increase a revolving commitment, or add incremental term loans, up to a set amount without negotiating a new agreement. The increase uses the same documents, collateral and guarantees. It is uncommitted: no lender is obliged to provide the extra money, and pricing is set when it is requested. The borrower must also meet conditions at the time, usually no default and pro forma covenant compliance. For a platform planning add-on acquisitions, it shortens the path to funding each deal, but it is not a substitute for committed money.
- What it does
- Adds revolver commitments or incremental term loans under the existing agreement
- Committed?
- No; lenders may decline, and new lenders may be invited to provide it
- Conditions
- No default, representations true, pro forma covenant compliance, minimum amounts
- Fee while unused
- Usually none, because nothing is committed
- Also called
- Incremental facility, incremental term loan, increase option
- Best used for
- Add-on acquisitions and growth the business can foresee but not yet size
How an accordion works
A credit agreement sets the size of each facility: a revolving commitment, a term loan, perhaps a delayed draw term loan. An accordion clause adds a right to ask for more, up to a stated ceiling. When the borrower wants to use it, it sends a request to the agent or lender, the existing lenders are usually offered the first opportunity to provide the increase, and any shortfall can be filled by new lenders who join the agreement.
The increase is documented by a short increase or incremental amendment rather than a new credit agreement. The new money shares the same collateral, the same guarantees and, usually, the same covenants. There is no new intercreditor agreement to negotiate and no second set of loan documents; the lenders bring their diligence and lien searches up to date rather than starting over. That is the whole point: the legal work for growth is done at the start.
An accordion can take two forms. A revolver increase adds to the revolving commitment, useful when a business outgrows its working capital line. An incremental term loan adds a new tranche of term debt, which is how most accordions are used to fund acquisitions.
Why it is uncommitted
The clause almost always says, in some form, that no lender is required to participate in any increase. Lenders resist committing to future lending they cannot price or underwrite today: the business may be different in two years, the market may be different, and each lender has its own limits on how much it will hold to one borrower. So the accordion gives the borrower a right to ask and a ready-made document, not a right to receive.
That has three consequences for the borrower. First, the money is subject to a new credit decision when it is requested, on the business as it is then and the acquisition it is funding. Second, the price is set then too; if rates or spreads have moved, the increase will reflect it. Third, because nothing is committed, the lender does not usually charge an unused fee or ticking fee on the accordion amount, which is the one way it is cheaper than committed capacity.
An accordion is capacity in the documents, not capacity in the bank. Plan a deal on it only once a lender has agreed to fund it.
The conditions to use it
Even when a lender is willing, the borrower must meet the conditions in the clause at the time of the increase. These are where most of the negotiation happens.
| Condition | What it means | What to negotiate |
|---|---|---|
| Maximum amount | The ceiling on all increases combined | A fixed amount, or a fixed amount plus whatever keeps leverage under a stated level |
| No default | No event of default exists, or results from the increase | For acquisitions, test at signing of the purchase agreement rather than at closing |
| Pro forma covenant compliance | The business would meet its covenants after the new debt, counting the acquired company's earnings | Clear rules for pro forma EBITDA, including which adjustments count |
| Leverage test | Pro forma senior or total leverage below a set level | A level with room above the maintenance covenant |
| Minimum size and number | Each request must be at least a set amount; only so many requests allowed | Enough requests to match the acquisition plan |
| Pricing protection for existing lenders | If new money is priced higher, existing loans reprice to within a set margin of it | The size of the cushion, and a time limit on the protection |
| Maturity of incremental loans | No earlier maturity than the existing term loan | Usually standard; accept it |
The pro forma test is the one that decides how much of the accordion is really usable. An incurrence-style leverage test, measured only when the debt is added, is different from the maintenance covenants tested every quarter; see maintenance vs incurrence covenants. An accordion sized at a large number can still be limited to much less by a leverage test.
A worked example: the accordion is not the capacity
A platform company has EBITDA of 4,000 and senior debt of 10,000, with an accordion of 6,000. Its credit agreement allows incremental debt only if pro forma senior leverage stays at or below 3.5x EBITDA. It signs a letter of intent for an add-on with EBITDA of 1,000.
| Case | Pro forma EBITDA accepted | Maximum senior debt at the cap | Room above existing 10,000 | Accordion usable |
|---|---|---|---|---|
| Lender accepts the add-on's earnings in full | 5,000 | 17,500 | 7,500 | 6,000 (the full accordion) |
| Lender accepts only part of the add-on's adjustments | 4,600 | 16,100 | 6,100 | 6,000 |
| Platform has a soft year and adjustments are cut | 4,400 | 15,400 | 5,400 | 5,400 |
| Platform has a soft year and the add-on's earnings are discounted further | 4,100 | 14,350 | 4,350 | 4,350 |
The accordion's face amount is 6,000 in every row. What the business can actually borrow ranges from 4,350 to 6,000, and even then only if a lender agrees to provide it. The difference is decided by how much of the earnings the lender believes, which is why the add-on's figures, its latest full year and the quality of earnings work behind them matter as much as the clause.
How platforms use accordions for add-ons
For a business that plans to grow by acquisition, the accordion is valuable mostly for time and certainty of documents. When an add-on is signed, the lender already knows the platform, holds the collateral and has the agreement in place. The credit decision is about the add-on and the combined business, not a new relationship. Sellers notice the difference between a buyer whose lender has an agreed path to fund and one starting from scratch; see financing add-on acquisitions.
The practical plan most platforms use combines three pieces:
- Committed money for the next known deal: a delayed-draw term loan, which the lender must fund if the conditions are met, sized to the pipeline the business can already see.
- An accordion for the deals after that: uncommitted but pre-documented, so each later add-on starts from an agreed framework.
- A revolver sized to the combined working capital, with its own increase option, so the line keeps up as acquired companies join the borrowing base.
The trade-offs between the two main acquisition tools are covered in delayed-draw term loan vs revolver. Pairing committed and uncommitted capacity this way costs less in ticking fees than committing everything up front, and gives more certainty than relying on the accordion alone.
When a lender declines to fund an accordion request, the business is not stuck. Many agreements let new lenders join to provide the increase, and a debt advisor with a broad book can bring them. Transparent's book holds 1,148 lenders writing term and private credit. A lender group that cannot stretch may also consider a separate junior loan, which the agreement's debt and lien covenants must allow.
When it is worth negotiating hard
An accordion costs little to include at closing, and lenders usually agree to one in some form. The terms that matter are the ones that decide whether it works when needed: a pro forma EBITDA definition that recognizes the acquired company's earnings sensibly, a leverage test with room above the maintenance covenant, enough separate requests for the acquisition plan, and the right to bring in new lenders if existing ones decline. A borrower expecting to use it within a year or two should negotiate these as carefully as the pricing on the money it is borrowing today.
Common questions
- Is an accordion the same as a delayed draw term loan?
- No. A delayed draw term loan is committed: the lender must fund if the conditions are met, and it usually charges a ticking fee until then. An accordion is uncommitted: the lender may decline, and usually charges nothing until it is used.
- Do I pay a fee for an accordion I have not used?
- Usually not, because nothing is committed. You may pay fees when you exercise it, and the new money is priced at that time.
- Can a new lender fund the accordion?
- Usually yes. Most clauses let the borrower invite new lenders to provide the increase if existing lenders decline, subject to the agent's reasonable consent.
- Does the accordion increase my covenant limits?
- No. The new debt counts toward the same covenants, and most clauses require pro forma compliance before the increase is allowed.
- Can I use an accordion on an asset-based line?
- Yes. Asset-based revolvers often have an accordion to raise the commitment as the business grows. Usable availability still depends on the borrowing base, so a larger commitment helps only if the collateral supports it.