Lines of Credit and Working Capital Solutions for Business Owners

Having reliable access to working capital is critical to any business’s health, and a lack of access is often to blame when issues arise at an otherwise healthy company. Working capital can come in several forms, and those forms typically follow a company’s stage of life. For a young startup, the most common source of working capital may be the owner’s personal funds, credit cards, home equity or even small loans from family and friends. As the company matures, it’s not uncommon for its working capital needs to exhaust those sources.  

Funding options for your business 

For most business owners, the first thing that comes to mind when thinking of business lending is a loan from a financial institution. While banks and credit unions are likely to be the most cost-efficient method of accessing capital, by no means are they the only sources of potential funding for businesses. 

Other viable options include angel investors, business credit cards, factoring arrangements and mezzanine financing, and more, depending on the specific needs and health of a business. Each source has positives and negatives, as well as widely varying costs. A prudent business owner would be wise to consider all options carefully when making a decision. 

Talk to your banker 

As a business owner, the first step you should take when assessing your working capital needs is to call your business banker and set up an appointment. Your banker is trained to ask specific questions that will help guide you toward the best solutions for your business. In short, it will be time well spent.  

While you may think a particular option is the best fit for you and your business, your banker may come to a different conclusion and offer you a perspective not yet considered from their experience helping other business owners. Make sure to share your short- and long-term plans with your business banker so that they understand how they can help your business achieve its goals. 

Secured lines of credit 

Provided your business has been profitable for at least two years, the simplest option for working capital is usually a secured line of credit through a bank or credit union. If this seems like a fit for your business, the first step is to reach out and let your banker know that you’d like to explore this option.  

He or she will want to understand your company’s financial health and growth plans, as well as the intended purpose of the loan. Perhaps you want to take on new accounts, hire additional staff, expand your physical space or upgrade your technology. Be as open and detailed as you can with your banker, as doing so will help him or her provide your business with the best possible solution. 

Be prepared to provide your banker with at least three years of financial statements, as well as details on your personal financial health, such as your personal tax returns. In general, a good rule to keep in mind is that your banker would rather have more information than less, so don’t worry about inundating them with documents. 

You should also consider whether short-term financing is, in fact, the right solution for your business. Typically, the loan term you are requesting should match the life cycle of whatever is being financed. For example, a revolving line of credit is generally best for a short-term loan, usually 12 months or less, and is typically used to finance short-term growth including new customers, employees or expansion. Loan payments are usually interest-only, with outstanding principle due at maturity. However, in practice, the expectation is generally that funds are repaid when the A/R related to the loan advance is collected, as opposed to having the line of credit carry a non-revolving balance throughout its term, which suggests that the financing provided was not what was truly needed by the business. 

The AssetLine option 

At Elevations, one of our most unique business products is our AssetLine, which has the cost efficiency and low-interest rates of a traditional secured line of credit. The AssetLine allows Elevations business members to easily access working capital by advancing funds via online banking. 

To find out more about how we can help your business grow, or to schedule an appointment with our Business Banking Team, please contact us today. 

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