Line of Credit is a loan arrangement that allows a business to borrow up to a limit when needed.

• A. A long-term equity investment from investors.
• B. A loan arrangement allowing a business to borrow up to a certain limit when needed.
• C. A credit card with corporate liability.
• D. A fixed-term loan with fixed payments.

Answer: (B)

A line of credit is a flexible borrowing facility that lets a business borrow up to a predetermined limit as needed. You can draw funds when cash is tight and repay them later, and then borrow again without reapplying. You pay interest only on the amount you actually use, not the full limit, and the available funds can be reused as you repay, which makes it a revolving source of working capital. This setup is especially useful for smoothing cash flow, handling irregular expenses, or bridging gaps between payables and receivables.

It differs from a fixed-term loan, where you receive a lump sum upfront and repay it in fixed installments over a set period. It’s not an equity investment, which would involve giving up ownership and returns rather than borrowing to be repaid. A corporate credit card is a separate tool with its own spending limits and terms and is not the formal line-of-credit facility.