A line of credit is a
highly flexible form of interim financing
based on past performance and strength of
personal or corporate covenants.
The line of credit,
in effect, can provide interim financing or
complements existing arrangements.
An arrangement typically between a
business customer and a financial
institution permitting loans to a maximum
amount of credit allowed for that business.
An initial credit level is established,
based on the credit worthiness and cash flow
abilities of the business. The line is
renewed, usually annually, upon presentation
of financial statements and the stated
interest rate generally fluctuates with the
prime rate. As a rule,
business should not rely upon a line
of credit for asset acquisition, but rather
only to meet short term operating
requirements.
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