Compensating Balances Are Frequently a Part of Revolving Lending Arrangements

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The Answer is Revolvers are very flexible lending arrangements and it is likely borrowers will value this flexibility,particularly if they follow a restrictive current asset management policy. Furthermore,since the compensating balance is typically required only if the borrower draws on the line,it is only a cost to the firm when borrowing is actually required. Alternative types of financing include letters of credit,accounts receivable financing (including factoring),inventory loans,commercial paper and trade credit.

Compensating Balances Are Frequently a Part of Revolving Lending Arrangements

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