BizTip#3

Advances on standby...
Line of Credit

Staying ahead of the unexpected.

Fluctuating cash flow is a part of operating a business. Even with relatively predictable sales revenues there will be times when expected expenses are higher, or when unexpected expenses arise. A line of credit can help you manage these times.

Money When You Need It

A line of credit is a loan that allows you to advance money as you need it. It provides the ability to have a level amount of funds available when needed, often based on a cash flow projection.

A line of credit can be helpful for seasonal cash flow adjustments or to cover larger than normal short-term outlays related to your cost of goods sold.

Examples:

Auger Replacement

A rancher discovers he needs to replace the auger on the feed bin for his cattle operation. It's vital it be replaced right away. He already has planned to take a load of steers to market within the next 45 days. He uses his line of credit to get him through this unexpected emergency and knowing it can be quickly paid off.

Wedding Flowers

Becky's Flower Shop needs to place a large order of flowers for a wedding that will occur in 3 months. She is required to make a 50% down payment at the time of the order. The bridal party has paid a deposit of 25% of the total order. Becky uses the line of credit to cover the 50% deposit, knowing the bridal party will pay the remaining balance 6 weeks prior to the wedding. Becky can pay back the line of credit at that time.

Tip#1 Differs from a long-term loan.
You are expected to pay off amounts drawn from a line of credit quicker than a long-term loan, which has equal payments spread over an extended period of time.

Tip#2 Typical terms.
A line of credit is typically set up for a one-year period. You pay interest only on the funds borrowed. As amounts are paid back, the total amount of the line of credit is replenished and available for borrowing at a future time. The goal is to have the ability to borrow funds when needed and pay them back over a short amount of time.

Normally revenue from business sales are to be paid towards the line of credit advances which have been used to pay business expenses.

Financial information requirements for applying for a line of credit often include:

  • Credit application
  • Balance sheet showing assets and liabilities
  • Current income statement / profit and loss statement
  • Up to 3 years of Federal and state tax returns

Tip#3 Easy access.
After your line of credit is established, making a draw on your line of credit is as simple as making a phone call to your loan officer. The funds are advanced to your account the same business day.

Interested in Applying for a Line of Credit?

Contact your PCB loan officer. We're here to help – call 547-2436!

Short Term Loan

We can also help you determine if a short-term loan might be a better option. Short-term loans (60 or 90 days) for example can help contractors purchase materials when a bid has been awarded on a contract job. Call your PCB loan officer at 547-2436 to learn about the best use for a short-term loan.

» Return to B2B Topics List