Final answer:
A line of credit from a bank sets the cap on funds a business can borrow, which is the maximum amount the bank is willing to lend; thus, the correct answer to the statement is True.
Step-by-step explanation:
A line of credit from a bank indeed sets the maximum amount that the bank is willing to lend to a business. This amount establishes a cap on the funds a business can borrow, although they don't need to use the entire line of credit and typically only pay interest on the amount they use. As a credit facility, it provides flexibility for businesses to manage cash flow, handle unexpected expenses or capitalize on business opportunities as they arise.
In contrast to a term loan that provides a business with a lump sum amount upfront which is to be paid back over time with interest, a line of credit is revolving, meaning that funds can be borrowed again once they have been repaid, up to the established limit. This aspect of access to capital as needed can be a critical factor for business growth and stability. Therefore, the answer to the student's question is a) True.