Backup Line


DEFINITION of 'Backup Line'

A line of credit used by a bank to cover any issue of commercial paper for which financing from new paper may not be available. A backup line of credit effectively provides an alternate source of liquidity for the issuer and a source of credit for the purchaser. Backup lines usually take the form of a confirmed letter of credit or contractual facility.


The amount of backup line generally ranges from 50 to 100%, depending upon the quality of the paper issued. Lower grade paper usually get greater coverage and vice-versa. These lines of credit are usually paid for with either compensating balances or else with a simple straight fee.

  1. Commercial Paper Funding Program ...

    A program instituted in October of 2008 that created the Commercial ...
  2. Commercial Paper

    An unsecured, short-term debt instrument issued by a corporation, ...
  3. Bank

    A financial institution licensed as a receiver of deposits. There ...
  4. Line Of Credit - LOC

    An arrangement between a financial institution, usually a bank, ...
  5. Commercial Paper Funding Facility ...

    An institution created by the Federal Reserve Bank of New York ...
  6. Long-Term Debt

    Long-term debt consists of loans and financial obligations lasting ...
Related Articles
  1. Mutual Funds & ETFs

    Asset-Backed Commercial Paper Carries High Risk

    Asset-backed commercial paper has characteristics that make it much more risky than traditional commercial paper.
  2. Bonds & Fixed Income

    5 Signs Of A Credit Crisis

    These indicators can illuminate the depth and severity of problems in the credit markets.
  3. Retirement

    The Money Market

    If your investments in the stock market are keeping you from sleeping at night, it's time to learn about the safer alternatives in the money market.
  4. Mutual Funds & ETFs

    Top 4 Investment Grade Corporate Bonds ETFs

    Discover detailed analysis and information about some of the top exchange-traded funds (ETFs) that offer exposure to the investment-grade corporate bond market.
  5. Investing News

    Corporate Bonds or Stocks: Which is Better Now?

    With market volatility high, you may think it is time to run for corporate bonds instead of stocks. Before you do take a deeper look into which is better.
  6. Mutual Funds & ETFs

    Top 3 China Bonds ETFs

    Explore detailed analysis of three exchange-traded funds (ETFs) that track the Chinese bond market, and learn about the suitability and characteristics of these ETFs.
  7. Investing Basics

    How Does a Sweep Account Work?

    A sweep account is a banking arrangement that transfers – or sweeps – balances from one account into an investment account at the close of each day.
  8. Savings

    The 5 Best Alternatives to Bank Saving Accounts

    Find out about some of the most profitable available alternatives to depositing money in a traditional bank passbook savings account.
  9. Credit & Loans

    Home-Equity Choice: Loan or Line of Credit?

    Before using your home as loan collateral, consider both your financing needs and your appetite for uncertainty.
  10. Credit & Loans

    5 Steps To Getting a Home-Equity Loan/Credit Line

    Want to use your residence as collateral for some financing? Our handy how-to guide to getting a home-equity loan or line of credit explains it all.
  1. Are mutual funds considered cash equivalents?

    Though all mutual funds are considered liquid assets, only certain funds are considered cash equivalents. What Is a Cash ... Read Full Answer >>
  2. Do mutual funds invest only in stocks?

    Mutual funds invest in stocks, but certain types also invest in government and corporate bonds. Stocks are subject to the ... Read Full Answer >>
  3. Why is my 401(k) not FDIC-Insured?

    401(k) plans are not FDIC-insured because they are typically composed of investments rather than deposits. The Federal Deposit ... Read Full Answer >>
  4. What is the relationship between the current yield and risk?

    The general relationship between current yield and risk is that they increase in correlation to one another. A higher current ... Read Full Answer >>
  5. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  6. What are some examples of money market funds?

    Money market mutual funds are designed to offer savers low-risk, liquid and short-term investments. They are normally offered ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Gross Profit

    A company's total revenue (equivalent to total sales) minus the cost of goods sold. Gross profit is the profit a company ...
  2. Revenue

    The amount of money that a company actually receives during a specific period, including discounts and deductions for returned ...
  3. Normal Profit

    An economic condition occurring when the difference between a firm’s total revenue and total cost is equal to zero.
  4. Operating Cost

    Expenses associated with the maintenance and administration of a business on a day-to-day basis.
  5. Cost Of Funds

    The interest rate paid by financial institutions for the funds that they deploy in their business. The cost of funds is one ...
  6. Cost Accounting

    A type of accounting process that aims to capture a company's costs of production by assessing the input costs of each step ...
Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!