Since 2007, banks have nervous establishing working capital lines of credit for their business customers. To know some of the secrets of the backup and use your line of credit will help ensure that it is available when you need it.
To know what your credit line for use, is the first step. Most of the credit lines are for working capital purposes. You are to support enter your receivables, inventory, seasonal treats in your business, pay and payroll is vendor and other purposes, the short term. Short term is by most banks (and accounting principals) defined as less than a year.
To it explain how you are on your balance sheet, are non-current assets current assets. The easiest way, you think of your working capital line of credit with money to only by the line of credit assets for, are the short term. Buy a large piece of equipment (a long-term asset) would be better with a lease or finance term loans, which does not exceed the purchased property of life.
Most banks offer working capital lines of credit for short-term and they collateralize short-term assets with your company. In other words, they awarded are money in the first place against your current assets on your balance sheet, usually receivables and inventory. Depending on the circumstances they can used also other assets of the database, add to you loan money. Most use a borrowing base certificate that they offer you, if you a draw on your line of credit to make.
One of the standards banks use when the approve credit lines is, that the commercial borrower profitable and has sufficient free cash flow credit facility be repaid. Also the credit line "Rest" a few weeks in the year see some banks. In this way "prove" that a company has adequate cash reserves beyond the line of credit. This usually not required for the first loan, but if the resting principal will follow it easier, an increase in your credit limit in the future to get.
One of the best ways to ensure that you have always access a working capital line of credit is to know your Bank and banker, and make sure that they know you. If you plan to apply for a credit line for you rather than waiting until you need it to start the process. If your business heights and deep and how you do business to know your banker they can better for a positive decision on a loan of any kind.
Is part of your bank to know understand how they make decisions on loan. Very few banks are exactly the same policies and personality. Many banks will not discuss how their credit process.
Usually is a line of credit for a year at a time. If you plan to keep it for more than a year, start at least a quarter before the renewal talks with your banker. This is especially true if your business has suffered a Hic-Up or two in the current period of credit line.
After a working capital line of credit requires some discipline. If your company has shown that it can handle the usual needs a working capital line of credit, which it probably is and your company needs a larger line, be easier to extend.
Sam Thacker is a partner in Austin Texas-based business finance solutions
Direct E-Mail: sam@lesliethacker.com
Twitter: @ SMBFinance
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