Question

What type of funding occurs when a lender obtains funds from a line of credit at a commercial bank?

A) Equity financing.
B) Debt financing.
C) Secured financing.
D) Revolving financing.

Answer 1

The type of funding that occurs when a lender obtains funds from a line of credit at a commercial bank is debt financing.

Step-by-step explanation:

The type of funding that occurs when a lender obtains funds from a line of credit at a commercial bank is Debt financing.

Debt financing involves borrowing money from a lender, such as a bank, and committing to scheduled interest payments, regardless of the firm's income. In this case, the lender provides funds through a line of credit, which allows the firm to access funds as needed.

For example, if a small business needs funds to cover operating expenses, it can obtain a line of credit from a commercial bank. The business can then draw funds from the line of credit whenever it requires additional capital.