Which of the following describes the financing arrangement that allows borrowing up to a set amount as needed and is repaid during the life of the line?

• A. Revolving Loan
• B. Line of Credit
• C. Term Loan
• D. Mortgage

Answer: (B)

A line of credit is a flexible financing arrangement that lets a business borrow up to a pre-approved limit as needed. You can draw funds when you need them, repay them, and then borrow again, all within the same facility. Interest is charged only on the amount actually borrowed, not the total limit, and the line remains available for use over its term. This setup is ideal for ongoing working capital, irregular cash flows, or expenses that don’t fit neatly into a fixed repayment schedule because it provides ready access to cash without reapplying for a new loan each time.

This differs from a term loan, where you receive a lump sum up front and repay it in fixed installments over a set period, and from a mortgage, which is a long-term loan secured by real estate. A revolving credit arrangement is closely related to a line of credit, but the key idea here is the ability to borrow up to a limit, repay, and borrow again during the life of the facility.