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Which Of The Following Statements Is True Of A Revolving Credit Agreement

The credit limit is the maximum amount of credit that a financial institution wants to extend to a client looking for the money. The credit limit is set when the financial institution, usually a bank, enters into an agreement with The Debitor. Financial institutions sometimes charge a commitment fee when they set up a revolving line of credit. In addition, there are interest charges on open balances for business borrowers and transportation costs for consumer accounts. An entity may have secured its revolving line of credit through the company`s own assets. In this case, the total amount of credit granted to the debtor may be limited to a certain percentage of the guaranteed assets. For example, for a company, the credit limit can be set at 80% of the stock. If the entity is not required to repay its debts, the financial institution may close and sell the secured assets in order to pay off the debts. Renewable credits imply that a company or individual has been previously authorized for a loan. A new application for credit and a revaluation of the credits do not need to be concluded with each revolving credit absorption authority. Renewable credits are for short- and small-scale loans. For large loans, financial institutions need more structure, including installation payments.

A revolving credit facility is a line of credit that is placed between a bank and a business. It comes with a fixed maximum amount and the company can access the funds at any time, if necessary. The other names of a revolving credit facility are the operating line, the management of the bank or simply a revolver. Revolving loans are a type of credit that, unlike installment assets, does not have a fixed number of payments. Credit cards are an example of revolving credit used by consumers. Corporate revolving credit facilities are generally used to provide liquidity to a company`s day-to-day operations. They were first introduced by strawbridge and Clothier Department Store. [1] This requires the company to repay more quickly instead of distributing the money to its shareholders or investors. In addition, it minimizes the credit risk and liability of a company that burns its cash reserves for other purposes, such as.

B large and excessive purchases. Revolving credits can take the form of credit cards or lines of credit. Renewable lines of credit can be withdrawn by businesses or individuals. It can be offered as an establishment. A type of revolving credit is particularly useful for operational purposes, particularly for businesses that experience large fluctuations in cash flow and higher-than-expected expenses. In other words, it is necessary for companies that sometimes have low cash resources to support their net labour capital on labour capital (NWC). It is a measure of a company`s liquidity and ability to meet its short-term obligations as well as the financing of its operations. The ideal position is to meet the needs. For this reason, it is often seen as a form of short-term financing that is usually quickly paid. A revolving loan provides a borrower with a maximum total amount of capital available over a specified period of time.

Unlike a long-term loan, the revolving loan allows the borrower to withdraw, repay and repay loans on available resources during the term of the loan.

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