Introduction to Finance

revolving credit agreement 
a 
commitment in the form of a 
standby agreement
 
for a guaranteed 
line of credit; a legal obligation 
of the bank to provide up to the 
agreed-upon borrowing limit during 
the time
 
the agreement is in eff ect
7
Banks are a major participant in the commercial paper market (discussed later in this chapter) as they frequently sup-
port this market by off ering paper issuers a line of credit, or an arrangement similar to the revolving credit agreement 
described above, to act as a secondary source of funds for repaying its commercial paper loans.

---

16.3 Providers of Short-Term Financing
503
surety bond support, minority enterprise programs, procurement assistance, and support for 
investment companies that service small businesses.
SBA working capital loans are limited to seven years, while regular business loans have 
a maximum maturity of 25 years. It sets a maximum allowable rate that banks can charge on 
guaranteed loans. These rates are adjusted periodically by the SBA to refl ect changes in mar-
ket conditions.
JOBS Act 
To assist small fi rms, the Jumpstart Our Business Startups (JOBS) Act became 
law in 2012. It allows fi rms to achieve equity fi nancing more easily than in the past. Although 
this discussion could be included in the section on a fi rm’s capital structure (see Chapter 18), 
a fi rm may use the JOBS Act to raise modest amounts of equity to help fi nance growth, sim-
ilarly to the other vehicles mentioned in this chapter. The main diff erence is that the other 
vehicles involve debt fi nancing while the JOBS Act allows for equity to be invested by new 
shareholders without going through the costly and time-consuming use of investment banks 
and the SEC registration process (as discussed in Chapter 11).
The JOBS Act allows fi rms (called emerging growth companies) with under $1 billion in 
sales to advertise a need for equity capital more easily and to fi nd investors. Called “crowd-
funding,” such appeals for capital can occur via the Internet, Web portals, and advertising. 
Prior to the JOBS Act, investors had to have $1 million in net worth before they could invest 
in such fi rms; now the fi rm’s limit is $100,000 in net worth, provided the individual invests 
no more than $2,000 in a fi rm. Emerging growth companies can raise up to $1 million a year 
this way from individual investors. For an emerging growth company seeking to do an initial 
public off ering (IPO), the need to provide up to fi ve years of selected fi nancial data is reduced 
to two years. Other regulatory burdens for going public are relaxed as well.
8