NATURE OF CREDIT LINES

A credit line is generally an informal understanding between the borrower and the bank as to the maximum amount of credit that the bank will provide the borrower at any one time. Although this arrangement is not a binding contract,most banks endeavor to honor the credit line unless some very unusual circumstance develops in the affairs of the would-be borrower. The usual duration of the credit line is one year or less,with a careful review of the borrower's situation by the bank at the end of the period.
SEASONAL BORROWING NEEDS AND CREDIT LINES Credit lines are often extended to borrowers who have large and recurring seasonal needs for bank credit.Such credit lines may be associated also with revolving credit and floor-plan financing,inventory and equipment financing,and construction activity.Business firms that often secure such lines of credit include sales finance companies,manufacturing and mining companies,commodity dealers,and trade and construction firms.All these kinds of businesses rely importantly on bank credit to help finance their seasonal needs for working capital.