Which instrument is a short-term revolving credit facility?

Which instrument is a short-term revolving credit facility?

• A. Mortgage
• B. RCF
• C. Term loan
• D. Bonds

Answer: (B)

The key idea is that a revolving credit facility is a short-term, flexible line of credit you can draw from, repay, and redraw up to a set maximum. This structure is designed to cover working capital and other liquidity needs, letting the borrower access funds as cash needs arise without renegotiating new debt each time. Interest is paid only on the drawn amount, and there’s typically a commitment fee on the unused portion, with the facility maturing after a short period or with renewal options. Mortgages are long-term loans secured by real estate and amortize over time, not revolving. Term loans are fixed-amount borrowings that are repaid in installments, with limited ability to re-borrow. Bonds are debt instruments issued for a fixed term with scheduled interest and principal payments, not revolving access. Therefore, the instrument that fits a short-term revolving credit facility is the revolving line of credit.

The key idea is that a revolving credit facility is a short-term, flexible line of credit you can draw from, repay, and redraw up to a set maximum. This structure is designed to cover working capital and other liquidity needs, letting the borrower access funds as cash needs arise without renegotiating new debt each time. Interest is paid only on the drawn amount, and there’s typically a commitment fee on the unused portion, with the facility maturing after a short period or with renewal options.

Mortgages are long-term loans secured by real estate and amortize over time, not revolving. Term loans are fixed-amount borrowings that are repaid in installments, with limited ability to re-borrow. Bonds are debt instruments issued for a fixed term with scheduled interest and principal payments, not revolving access. Therefore, the instrument that fits a short-term revolving credit facility is the revolving line of credit.