1. Credit arrangement, usually a Line of Credit, allowing corporate borrowers to finance inventory and receivables, purchase supplies, and pay wages during a manufacturing and sales cycle. The borrower has the option of using the line of credit anytime during a specified period, usually two years, and then becomes conventional Revolving Credit. A line of credit may, however, be less enforceable than a revolving line of credit.
The commitment fees and compensating balances the borrower pays to obtain a standby line are a less expensive way to borrow than a fixed term loan because the borrower draws only what is needed, and can pay down the outstanding balance at any time.
2. Extended credit, supplied by the Discount Window at a Federal Reserve Bank for periods up to 90 days. Federal Reserve banks make these advances under certain conditions to smaller financial institutions that have a demonstrated seasonal need for funds or have difficulty raising funds from the national money market.
