Lines-of-credit, and what lenders know about them

Ever been in the position where you were offered a product by your banker and you later regretted not accepting?  I had clients back in the day who were pre-approved for a line of credit at the time and declined stating, “We have plenty of reserve cash” or “We don’t need that, our cash flow is off the charts.”  Well, guess what?  When you really need it, you probably won’t qualify.  The reason why is most of the time when you do need it, you are up to your eyeballs in debt.  Below are some fantastic ways businesses use lines of credit.

Managing Cash Flow

In a perfect world, you would have plenty of cash reserves, clients/vendors who pay on time, employees who work for free, etc.  However, in the real world, we all know that this does not exist.  Having a line of credit in place for shortages may be the best decision you ever make.  When used properly, the line of credit can be one of your businesses’ biggest assets during months when cash flow is tight.  Just make sure to pay down the line of credit.  The lender will be looking at how much you use and your ability to pay it back during your review.  Some lenders will do a monthly, quarterly, or annual review.  At that time, they may lower your line of credit or decrease it, depending on your usage.  In some instances, lenders may call the note if you have been irresponsible with your line.

Flexibility

Having the flexibility and convenience to use your line of credit as you need is unmatched.  For example, if you have a term loan, the monthly payments are fixed and you cannot increase the loan amount if an emergency arises.  With a line of credit, you are able to draw funds as you need. An unexpected emergency in which your equipment fails?  Purchase another one with your line of credit.  Most lines of credit payments are interest only. You are not forced to make principal and interest payments if you do not have sufficient cash-flow during difficult months.

Lower Interest

Most rewards credit cards have high interest rates.  The lender is giving you rewards in exchange for a higher interest rate which can balloon if the card is not paid off in full.  A line of credit is a better option since the interest rate is typically much lower than a credit card.  And the payments may be interest only, depending on the lender.  This does not mean you can go out and shop for personal needs.  Just be careful.

Do Your Homework, Compare Options

In conclusion, what lenders know about lines of credit should be re-titled to what you should know about lines of credit. We have advised several clients to use Magilla Loans, a fast, anonymous, and free search engine for commercial loans.  It is simple to use, just answer a handful of questions and receive multiple loan proposals.  Above all, Magilla Loans is absolutely FREE.