If a company has made arrangements with a bank to borrow money in the months when they have a negative cash balance,this arrangement is a
A)bank overdraft.
B)demand loan.
C)long-term loan.
D)line of credit.

Question

Quizplus · Accepted Answer

A line of credit is an agreement between a business and a bank that provides the business with access to a certain amount of funding that can be borrowed as needed, up to a specified limit. This type of arrangement is often used when a business has a fluctuating cash flow, and may need to borrow funds to cover temporary cash shortages. Unlike a traditional loan, businesses only borrow what is needed and pay interest solely on the amount borrowed, making it a flexible and cost-effective financing solution. Bank overdrafts are typically short-term loans used to cover cash shortages, whereas long-term loans are used for larger capital investments. A demand loan is a type of loan that requires repayment at any time upon demand by the lender.

If a Company Has Made Arrangements with a Bank to Borrow