Frank, the owner of a local hardware store, decides to stock extra snow blowers and shovels this year, since his city is predicted to have an unusually snowy winter. Lacking sufficient capital to purchase the extra inventory, he borrows a predetermined sum of money from his bank. Which source of funding does this scenario best illustrate?

Question

Quizplus · Accepted Answer

Frank is using a line of credit to meet his capital requirement. Banks and other financial institutions can grant a small business a line of credit-an agreement by which a financial institution promises to lend a business a predetermined sum on demand. A line of credit permits an entrepreneur to take quick advantage of opportunities that require external funding.

Frank, the Owner of a Local Hardware Store, Decides to Stock