Fifth Third Bank talks about lines of credit

Being able to access capital in today’s tough economic environment could mean the difference between success and failure for many businesses.

For those business owners, one of the most common sources of capital is a short-term working capital line of credit, capital that is still available — even in this economy — to qualified borrowers.

Having a profitable history with your lender is the best attribute you can bring to the table when applying for or renewing a short-term line of credit.

“Short-term lines of credit come in a number of different forms, so you need to know which one is the best for your business,” says William W. Carroll, vice president with Fifth Third Bank. “The right type of credit may provide the most flexibility to run your business profitably.”

Smart Business spoke with Carroll about the benefits of using short-term lines of credit and the different types of credit available.

What are the benefits of using short-term lines of credit?

Short-term lines of credit may help you survive, and maintain and grow your business. Without one, cash will have to be supplied by stakeholders, which may not always be available, and may be more expensive.

Many mature businesses, especially those with risk-averse owners, may be able to survive without a short-term line of credit by relying on existing cash balances. But for the majority of businesses, the short-term line of credit is an integral part of business operations and success.

What are some key things you should know about using short-term lines of credit?

Short-term lines of credit are for a period of one year or less. These may be revolving, so the loan balance rises and falls with the ebb and flow of cash collections. You can also take draws and make paydowns manually, as cash and time permit.

Sweep lines of credit may be more desirable than manual lines, as they are more efficient with cash usage. These do not leave idle cash on hand that could instead be used to reduce the line of credit and save on interest expense.

The loan balance for the sweep line of credit is tied to your commercial checking account, so draws and paydowns happen automatically. This does not require an employee to take time to monitor the balance and guess when outstanding checks will clear and expected collections will actually occur.