Question
Which of the following statements correctly describe the
features of a revolving credit facility? i. The borrower is sanctioned a credit limit for the commitment period. Â ii. Funds can be drawn, repaid, and re-borrowed multiple times during this period. Â iii. It sometimes includes an option to convert into a term loan at maturity. Â iv. It requires repayment in a fixed number of equal installments like a standard term loan.Solution
• A revolving credit facility provides a borrower with a credit limit (usually 1 year, extendable). • Within this limit, the borrower can withdraw, repay, and borrow again — making it flexible compared to a term loan. • In some cases, the agreement includes a conversion option, allowing the revolving line to be turned into a term loan at maturity. • Unlike a term loan, revolving credit does not require fixed equal repayments — it is based on usage within the limit.
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