Short Term Working Capital B11-07b
Prove some advantages of lines/letters of credit, and revolving credit agreements, as forms of financing.
- Advantages:
- Line of credit and revolving credit agreement, provide cash for general use.
- Unsecured; commonly available; flexible as credit used when needed.
- Disadvantages:
- High interest rate for poor credit worthiness.
- Repayment in the short term.
- Line of credit does not legally obligate the financial institution.
- Required compensating balances increase cost, and effective funds available.
