Why do some lenders require a firm to "clean up" their line of credit one month each year?
A) because such a loan can only be outstanding for a maximum of 11 months
B) because each year a new rate of interest is applied to the outstanding balance
C) to help the firm develop a good credit history so it can borrow larger amounts in the future
D) to ensure the loan is being used for business purposes only

Question

Quizplus · Accepted Answer

Requiring a firm to "clean up" their line of credit one month each year ensures that the loan is not outstanding for a maximum of 12 months, as is typical for a revolving line of credit. This protects the lender from potential default and keeps the borrower accountable for their debt.

Why Do Some Lenders Require a Firm to "Clean Up