A firm may use a revolving credit agreement instead of a line of credit for various reasons. The correct answer is: The revolving credit agreement commits the bank to the loan.What is a revolving credit agreement?Revolving credit agreements are agreements between a lender and a borrower that allow the borrower to withdraw funds, repay the loan, and re-borrow funds under the credit agreement's terms. Because it is a form of a loan, the lender imposes an interest rate and charges fees. Revolving credit agreements are usually for short-term financing because they only last for a fixed amount of time, like a year. The loan amount available under a revolving credit agreement varies from borrower to borrower.What is a line of credit?A line of credit is a credit facility that is available to an individual or a company. A line of credit functions similarly to a revolving credit agreement. It allows the borrower to draw on the funds, pay them back, and draw them down again as needed. A line of credit may be secured or unsecured, and it may have a fixed or variable interest rate.Why would a firm use a revolving credit agreement instead of a line of credit?A revolving credit agreement is chosen over a line of credit when a borrower requires a more formal and structured arrangement for a longer period of time. A revolving credit agreement requires a bank or a lender to make the funds available to the borrower on an ongoing basis for an agreed-upon period, such as a year. Revolving credit agreements are frequently used to finance a company's short-term working capital needs. The bank commits to the loan in a revolving credit agreement, which is why firms use them.