A line of credit availed for a seasonal business has to be repaid from several operating cycles. True or false ? Please give reasons

Seasonal loans provide a business with short-term financing for inven- tory, receivables, the purchase of supplies, or other operating needs during the business cycle. These types of loans are often appropriate for businesses that experience seasonal or short- term peaks in current assets and current liabili- ties, such as a retailer who relies heavily on a holiday season for sales or a manufacturing company that specializes in summer clothing. These types of loans are often structured in the form of an advised line of credit or a revolving credit. An advised line of credit is a revocable commitment by the branch to lend funds up to a specified period of time, usually one year. Lines of credit are generally reviewed annually by the branch, do not have a fixed repayment schedule, and may not require fees or compensating bal- ances. In the case of unadvised lines of credit, the branch has more control over advances and may terminate the facility at any time, depend- ing on state law or legal precedents. A revolving line of credit is valid for a stated period of time and does not have a fixed repayment schedule, but usually has a required fee. The lender has less control over a revolving credit since there is an embedded guarantee (i.e. firm commitment) to make advances within the prescribed limits of the loan agreement. The borrower may receive periodic advances under the line of credit or the revolving credit up to the agreed limit. Repay- ment is generally accomplished through the conversion or turnover of short-term assets, such as inventory or accounts receivable. Inter- est payments on working capital loans are usu- ally paid throughout the term of the loan, such as monthly or quarterly. Working-capital loans are intended to be repaid through the cash flow derived from con- verting the financed assets to cash. The structure of the loans can vary, but they should be closely tied to the timing of the conversion of the financed assets. In most cases, working-capital facilities are renewable at maturity, are for a one-year term, and include a clean-up require- ment for a period sometime during the low point or contraction phase of the business cycle. The clean-up period is a specified period (usually 30 days) during the term of the loan in which the borrower is required to pay off the loan. While this requirement is becoming less common, it provides the branch with proof that the borrower is not dependent on the lender for permanent financing. It is important to note, however, that an expanding business may not be able to clean up its facility since it may be increasing its current assets.

Excellent detailed answer Sir. As explained by Mr.Vinod, answer is False as generally the seasonal peaks need short term funding and this short term funding will be repaid through conversion of receivables from peak period into cash which will be enough to repay the short term funding while the company is entering into non-peak season.