Which of the following bank loan arrangements is typically accompanied by a requirement that the firm maintain a minimum level of deposits with the lending bank and restricts the level of the borrowing firm's working capital?

Question

Quizplus · Accepted Answer

A committed line of credit arrangement typically requires the borrowing firm to maintain a minimum balance with the lending bank, known as compensating balances, and may also restrict the level of the firm's working capital. The other loan arrangements mentioned, such as a single end-of-period payment loan or a discount loan, do not typically come with such requirements. A bridge loan is a short-term loan used to bridge a financing gap until longer-term financing can be arranged, while uncommitted lines of credit do not require the borrower to use the credit facility but may come with higher interest rates or fees.

Which of the Following Bank Loan Arrangements Is Typically Accompanied