LINE OF CREDIT FOR YOUR WORKING CAPITAL

2007-03-08 10:33:40

( Financial )



A steady supply of working capital is necessary for business expansion and maintenance. This is particularly important when account receivables are not yet realized. A business must have a steady supply of cash flow to operate efficiently and continuously. Business expenditures are constant and need immediate response. Availing a line of credit from a bank will address cash flow requirements of your business.

A line of credit is the maximum amount that a bank grants to a borrower. It is a short term unsecured credit used for multi-purpose financial needs of business. It differs from an ordinary loan wherein application and approval is granted for a specific purpose. It is more flexible since cash can be draw down anytime. It can be used to fund tax payments, business development expenses, building improvements and product launchings.

The important factor in the approval of a line of credit is a proven track record of the company to pay off credit as well as its financial strength. Banks usually provide line of credit to long time clients who have a proven track record of good repayments. Initially, banks grant a smaller amount of credit line to new clients and increase it as its relationship grows. So it is important to foster good relationship with your banks and eventually avail of a credit line and increase it over time.

Like any loans, lines of credit need to be paid in full before you can avail of another one. Your repayment performance on your credit line determines the approval as well as the amount of the subsequent credit lines. Adverse credit performance risk you to lose the credit line. It will eventually affect your cash flow. Also you will post a negative credit report. Posting a negative credit report put a risk on your ability to avail of future credit line.


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