Most firms like lines of credit because the compensating balance requirement frees up their capital to pay short-term debts.

Name: Most firms like lines of credit because the compensating balance requirement frees up their capital to pay short-term debts.
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Most firms like lines of credit for their flexibility, but the compensating balance requirement actually reduces the amount of capital available to pay short-term debts because it requires the firm to keep a minimum balance in their account.

Most Firms Like Lines of Credit Because the Compensating Balance