For many businesses, cash flow can be problematic. You may be caught between paying suppliers and awaiting payment from customers. A credit line could be just the lifesaver you need. Used wisely, a credit line can help a company bridge the gaps across the peaks and valleys of its cash flow and even help it grow.
Filling Short-Term Needs
A credit line is usually intended for short-term financing of up to a year. If it has been used prudently and paid off promptly, it may be extended from year to year. Manufacturers often use a credit line to buy raw materials, then pay it off when the products are sold. Seasonal companies may use a credit line to cover expenses during slow months, and repay it when business picks up. Import/export firms might find a credit line convenient for managing the sometimes long wait times for payments or goods to arrive.
Credit lines can also help finance growth. You might need a cash boost in order to accept that one big order that's going to put your company in a different league.
How It Works
Structure – Credit lines are set up along the lines of consumer credit cards. 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.
Interest – The interest rate on a credit line 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.
Benefits of Horizon Lines of Credit
- Access Credit Line funds without tedious approval processes
- Pay interest only on used funds, not your entire Credit Line
- Multiple repayment options available
Is a credit line right for you and your business? Your Horizon Business Banker can help you review your company's borrowing needs to determine if a line of credit is the best financing option for you. Call to set up an appointment at 888-873-2640.