Cleanup clause

A cleanup clause[1] is a contractual provision in a loan agreement which provides that all loans must be repaid within a specified period, after which no further loans will be made available to the debtor for a specified "cleanup" period.

It may also refer to revolving line of credit. A lender may require a cleanup period annually, for example a borrower may have to pay down the balance to zero for 30 days.

Banking practice

Cleanup clauses are most commonly associated with short-term working capital facilities and revolving lines of credit. Banking guidance describes a clean-up period as a specified period, often around 30 days, during which the borrower is required to pay off the loan balance. This requirement is intended to demonstrate that the borrower is not relying on the credit facility as a source of permanent financing.[2]

U.S. banking supervisory materials also note the importance of assessing whether a borrower’s trade cycle supports a complete payout of seasonal lines of credit. In this context, a cleanup requirement helps lenders distinguish between genuinely seasonal borrowing needs and ongoing working capital dependence.[3]

References

  1. ^ "Cleanup Clause | UpCounsel 2025". upcounsel.com. Retrieved 26 July 2025.
  2. ^ "Commercial Loans" (PDF). Board of Governors of the Federal Reserve System. Retrieved 28 April 2026.
  3. ^ "Commercial Loans" (PDF). Office of the Comptroller of the Currency. Retrieved 28 April 2026.
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