What is an arrangement by which a bank agrees to lend a specified amount of money to an organization upon request called?

• A. Line of Credit
• B. Pro forma
• C. Equity Capital
• D. Angel

Answer: (A)

A line of credit is a banking arrangement that lets a borrower access a maximum amount of money on demand. The bank agrees to lend up to a set limit whenever the organization needs funds, and the borrower can draw, repay, and redraw without going through a new loan application. Interest is charged only on the amount actually borrowed, not the total limit, making it a flexible way to smooth cash flow. This differs from pro forma (a projected financial statement), equity capital (ownership funding from investors), and an angel (an individual investor providing capital, typically for equity or convertible debt). For example, a company with a line of credit of $500,000 can borrow $200,000 to cover a payroll spike now and repay it later, keeping the rest of the limit available.