Many small business owners are reviewing bank line of credit options, as managing your line of credit is essential for the long term success of your business.  Here are some conditions you should keep your eye on when utilizing a bank line of credit:

  • Most lines of credit are based on a variable interest rate…this means when the Fed decides to start raising interest rates, your payments will increase.
  • A bank line of credit typically has blanket lien provisions. This means you are putting up all your company’s assets as collateral for the line of credit. In 2008, many small business owners had their banks force an early payoff on their debt and the businesses lost all of their assets.
  • If securing a bank line of credit requires a monthly minimum bank balance, then in reality you are tying up your cash to secure equipment.
  • Any line of credit is considered current debt and can limit a company’s ability to secure funding in the future. Many small business owners prefer to protect their debt ratios so that they have flexibility in the future to purchase real estate or expand their business.

 

Another option to consider would be to use equipment financing for equipment purchases and a bank line of credit for operational expenses.  Here are some of the benefits of equipment financing:

  • The only collateral secured is the equipment being purchased and there are no forced payoff provisions or blanket liens.
  • Payments are fixed over the term and upfront cash requirements are minimal.
  • When structured properly, equipment financing does not affect debt ratios which gives business owners more leverage to obtain better terms on commercial real estate.

 

For a comparable analysis on your next purchase click here to get a quick quote or call us directly at (949) 441-5739 for a competitive customized equipment finance option for your business.