Question

explain pros and cons of using a bank term loan, a bank term loan, and a bank revolving line of credit if a company needs external capital but has low current ratio.

Answer 1

Term loans are credit loans that have a specified period and can be used to fund monhtly expenses as they can be repaid every month. The pros are that they can be used to fund routine expenses when the loans are not easily availaible due to low current ratio and thus provide liquidity. The cons are that these loans have a floating rate and may be costly

Revolving line of credit is useful when the company needs cash but it uses it only when it is needed and can be repaid when not needed. Thus interest need to be paid only when it is needed. the cons are that the rate is usually higher and tehre are covenants to maintain.