If you only take away from concept from this memo, let it be this.
The best time to apply for a line of credit is
when you don’t need one.
The best time to apply is often when the business is doing well and doesn’t necessarily “need” the financing. When a business is profitable, the likelihood of a loan approval obviously is greater than if a business is struggling. Often times when a business has had a rough year or two and seeks financing from the bank, it’s typically too late. If they had applied when they were doing well, odds are they could have had that Line of Credit available for a rainy day. Lines of Credit are great for a “just in case” scenario or if something unexpected comes up down the road and additional capital is needed.
Remember, you only pay interest on the amounts you draw from a line of credit.
Cash Flow Gaps
1) If a business gets paid overtime for their products or services (not via cash or credit card, which is immediate payment), they can use a Line of Credit for short term capital. This capital can then be used to buy supplies and inventory in order to continue to fill orders while they wait for their receivables to come in.
2) If a business is growing and expanding, they can utilize a Line of Credit to support their payroll needs. With this additional capital, they can hire new employees to meet the high demand for their products and/or services.
Essentially, a Line of Credit is perfect for businesses that
- Are not in a “cash” industry and don’t get paid right away;
- Need capital on hand to frequently purchase inventory; and
- Have growing businesses / practices / firms that need capital to support payroll.
The Line of Credit gives the business another option for capital and therefore prevents them from depleting their business cash flow in case.
I have relationships with many lenders who I will gladly introduce you to review your situation in greater detail.
Please reach out to me without hesitation with any tax,
business or accounting question,
and to schedule a consultation.
Tax Laws are complex.
It is very easy to make mistakes that can incur penalties.
Do you have a Tax, Accounting or Business Question?
Is your CPA or Attorney ignoring you?
Call Me Immediately.
(732) 673-0510.
Remember,
“If We Aren’t Working For You, Then You Aren’t Working At Your Best”
Chris Whalen, CPA
(732) 673-0510
79 Oak Hill Road
Red Bank, NJ 07701
www.chriswhalencpa.com
