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Do I Need a Line of Credit?

Cash is King. As a small business owner, access to reliable sources of liquidity is important, particularly during times of uncertainty. It provides capacity to weather downturns as well as flexibility to take swift advantage of opportunities as they surface. Having ample stores of cash on hand is ideal. However, it is not always efficient to carry large cash balances or realistic to be able to suddenly stock pile a significant liquidity position. 

Having access to a revolving line of credit that can be borrowed and paid back over and over can be an important part of a business’s liquidity arsenal. Lines of credit come in various forms, some secured by business assets such as accounts receivable and inventory, while others may be secured by real estate or even equipment.

If you don’t have a line of credit, ask your banker what they could offer. Make sure you take note of the interest rate, any origination or non-usage fees, as well as how much your lender is willing to advance on different types of collateral. If you already have a line of credit, be sure you inquire about renewal terms ahead of the maturity date to avoid surprises.

Have your financials and business plan in order before meeting with your banker. That way they have a clear understanding of your business’s needs, so they can provide you with the right financial tools to access cash when you need it.


Originally published in the Small Business Monthly's Ask The Banker Column in July of 2023 by Pete Zeiser, President - Chesterfield Commercial at Midwest BankCentre.