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Compensating Balances Are Frequently a Part of Revolving Lending Arrangements

question 80

Essay

Compensating balances are frequently a part of revolving lending arrangements with banks,yet they add to the cost of financing for the borrower.Why,then,would borrowers agree to such terms?
What other types of alternative financing are available?


Definitions:

Extend Credit

The act of allowing a customer to purchase goods or services now and pay for them later, under agreed terms and conditions.

Resale

The act of selling again, especially selling a purchased item to another buyer.

Adjustment Messages

Communications intended to address and rectify a mistake or misunderstanding.

Revise

To review, alter, and amend content or documents with the intention of making corrections or improvements.

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