Conventional Revolving Credit Agreements

D

A conventional revolving credit agreement allows the borrower to borrow for a short period of time with the right to renew the loan during the commitment period. This means that the borrower can access a certain amount of credit, typically referred to as the credit limit, and use it as needed within the specified period, which is known as the commitment period.

Option A, "To borrow a fixed amount for the entire commitment period," is incorrect. In a revolving credit agreement, the borrower has the flexibility to borrow and repay multiple times during the commitment period, up to the credit limit. The borrower is not obligated to borrow the entire fixed amount for the entire commitment period.

Option B, "To borrow for a short-period with a right to renew the loan during the commitment period," is correct. A revolving credit agreement allows the borrower to borrow funds for a short period, typically on an as-needed basis. The borrower can renew the loan or borrow additional funds within the commitment period, subject to the credit limit and the terms and conditions of the agreement. This flexibility is one of the key features of a revolving credit agreement.

Option C, "To possibly include a provision to convert the credit agreement into a term loan contract at maturity," is also correct. While not a mandatory feature, some revolving credit agreements may include a provision that allows the borrower to convert the revolving credit into a term loan at the end of the commitment period. This provision provides the borrower with an option to convert the revolving credit into a longer-term loan with fixed repayment terms.

Therefore, the correct answer is option D, "All of the above," as it encompasses all the possibilities mentioned in options A, B, and C. A conventional revolving credit agreement allows the borrower to borrow funds for a short period with the right to renew the loan during the commitment period. It also provides flexibility in terms of borrowing amounts and may include a provision to convert the credit agreement into a term loan contract at maturity.