Question

Qingyi owns a successful Thai restaurant. He hears that a competing Thai restaurant in a neighboring town is going out of business, and he wants to buy it to expand his restaurant business. To do so, he makes an agreement with a financial institution to get $80,000 on demand.

What is this type of agreement called?

Answer 1

The correct answer is: Line of credit.

Step-by-step explanation:

A line of credit is an arrangement where a bank provides a maximum amount of loan the borrower can drop on at any time. The borrower who can be an individual, corporate, or government entity has as much flexibility as they want up to the maximum amount. Borrowers are charged interest only on the funds they draw and the rate of interest is often lower than that of a one-time loan.

Thus, the $80,000 Qingyi is offered by a financial institution so he can expand his restaurant business represents his line of credit.