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A line of credit is any credit source extended to a business by a bank or financial institution. A line of credit may take several forms such as cash credit, overdraft, demand loan, export packing credit, term loan, discounting or purchase of commercial bills etc. It is like an account that can readily be tapped into if the need arises or not touched at all and saved for emergencies. Interest is only paid on the money actually taken out.The concept has been introduced recently after the East Asian Crisis.The government can borrow money from international monetary institutions without having to handle the problem of an increasing foreign exchange reserves.
Lines of credit are often extended by banks and financial institutions to credit worthy customers to overcome liquidity problems.
Cash credit
Cash credit is a short-term cash loan to a company. A bank provides this type of funding, but only after the required security is given to secure the loan. Once a security for repayment has been given, the business that receives the loan can continuously draw from the bank up to a certain specified amount.
Secured Line of Credit (SLOC) is given to individual and businesses who have assets.
See also
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