Close the Gap with a Business Line of Credit
A business line of credit can provide the flexibility to borrow what you need, when you need it. Learn more about how a business line of credit is structured for your short-term borrowing needs.
Maintaining a steady cash flow is one of the many challenges of running a business. It doesn’t matter if you’re an app developer or an antique boutique — if your workflow requires investing in services or supplies on the front end, it’s easy to get caught between paying suppliers and awaiting payment from customers.
A business line of credit[cite::2149::cite] provides the flexibility to borrow what you need, when you need it. It can help bridge the gaps across the peaks and valleys and help your business grow.
Financing for Short-Term Needs
A business credit line is built for financing short-term needs. Manufacturers often use a business credit line to buy raw materials, then pay it off when the products are sold. Seasonal companies may use it to cover expenses during slow months and repay it when business picks up. Companies that rely on imports and exports might find a credit line convenient for managing long wait times for payments or goods to arrive.
Business credit lines can also help finance growth. An infusion of cash might help you move forward with a big order that may open doors to more business in the future.
Borrowing with a Business Credit Line
Structure: A credit limit is established, and you can draw against that limit. As the money is repaid, it becomes available for you to borrow again, as many times as needed during the specified term. Most lenders require that the balance be paid down to zero at some point during the term, to ensure the business line of credit isn’t being used for long-term needs.
Interest: The interest rate on a business line of credit is usually variable and tied to prevailing interest rates through the prime rate or some other standard. When interest rates rise, the cost of a credit line goes up.
Collateral: Most credit lines must be secured by collateral. Often, companies use a percentage of their accounts receivable or inventory as collateral. The loan agreement defines the amount of control the lender has over the collateral and cash proceeds.
Guaranty: Lenders also frequently demand that the business owner or a majority stockholder serve as the personal guarantor of a credit line. This helps ensure that the business treats the borrowed funds prudently.
Explore Your Options
Your business banker at Amegy Bank can help you assess your company’s borrowing needs to determine if a business line of credit is the best financing option for you. Contact us to learn more about ways to stabilize business cash flow to manage the changing financial needs of your business.