What Is a Key Difference Between a Line of Credit

question 164

Multiple Choice

What is a key difference between a line of credit and a revolving credit agreement?

• A)With a line of credit, the borrower must secure the funds by pledging collateral, but with a revolving credit agreement, no collateral is required; the bank simply agrees to continue making additional funds available as long as the borrower makes required payments of principal and interest.
• B)With a line of credit, the funds are available for up to a year, while under a revolving credit agreement, the funds are available for no more than 90 days.
• C)With a line of credit, the bank only agrees to make funds available as long as the borrower's credit rating doesn't deteriorate, while in a revolving credit agreement, the bank guarantees that the funds will be available.
• D)With a line of credit, the interest rate on the borrowed funds is stated in advance, while in a revolving credit agreement, the interest rate is allowed to "float" based on agreed-upon criteria.

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