An informal line of credit and a revolving credit agreement are similar except that the line of credit creates a legal obligation for the bank and thus is a more reliable source of funds for the borrower than the revolving credit agreement.

Question

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An informal line of credit does not create a legal obligation for the bank and is therefore considered less reliable compared to a revolving credit agreement, which is a formal and legally binding contract.

An Informal Line of Credit and a Revolving Credit Agreement