Skip to main content
_FB_2018-Icons-finalized-cleaned-up_new_FB_2018-Icons-finalized-cleaned-up_newGroup 9
Scroll to top

How to Get the Most Out of Your Commercial Line of Credit

John Harrington's headshotWe recently had the good fortune to connect with First Bank team member John Harrington to pick his brain about all things business lending. Based out of Charlotte, NC, John is the Senior Credit Analyst for First Bank’s Western Region. John has worked with hundreds of commercial clients spanning from small businesses to some of the country’s largest corporations. As an analyst, John’s focus is on evaluating the risk inherent in each loan request and building structures tailored to his clients in order to minimize that risk and maximize the benefit for the client.

Here John provides the first article in a series about the ins and outs of commercial lending, loan management, and business finance best practices.

When things are going well for your business, it can feel like you’re flying high. But if you hit a pocket of unanticipated expenses, the dip in your cash flow might have you looking for parachutes.

That’s where one of the most common types of business or commercial lending, the line of credit, can come in handy. The line of credit is revolving in nature, meaning that it doesn’t have a set repayment term, and you can take cash out and put it back basically as you please so long as you make small minimum monthly payments.

A line of credit offers flexibility and quick access to liquidity, but it can be misused, which can lead to turbulence either for your company or for your relationship with your bank.

How to Avoid Turbulence

Businesses generate revenue on a daily basis, but most (outside of retail) do not receive that revenue as cash at the same time that it’s generated. Instead, the revenue generally becomes accounts receivable (AR).

AR is a promise to pay in a certain span of time; such as 30 days. For example, if a customer purchased something from you on July 1, they would get the benefit of receiving that product or service today but would have until August 1 to pay for it. This is very convenient for the customer of course, but not for your business.
In addition to generating revenue every day, most businesses also generate costs and expenses. While you too may be able to purchase things on AR, some vendors will require payment immediately. That’s where timing issues with when your money can make things complicated.

Not having sufficient and liquid funds can prove catastrophic to a business. Bills are defaulted on, services stop, employees quit, and the whole company is endangered. Rather than constantly monitoring your cash flow to make sure its sufficiently flexible at all times, a line of credit (LOC) offers a convenient alternative. Using a LOC as a liquidity reserve to finance your costs and expenses allows you to be more strategic with your cash and gives you the assurance that you will not miscalculate and have a cash shortage.

Coming In for a Successful LOC Landing

The best way to utilize your LOC is to use it to pay all of your day-to-day bills, letting it be your liquidity reserve and leaving your cash for more strategic things. Then as you collect on your AR, use the appropriate portion to pay off the LOC.

Following this strategy, your cash is net of all costs and expenses, meaning it is true liquidity, and not a temporary balance that may shrink when a bill comes in. This allows you to take your profit and confidently use it for the things you want to use it for; whether that’s buying new equipment, funding growth initiatives, or paying yourself or others more.

See this strategy in action with the second article in this series: Financing Your Operating Cycle.

If you’re ready to explore using a LOC for easier cash management (a great way to ensure peace of mind for you and your bookkeeper!) reach out to your local First Bank business banker today. Your options will be tailored to meet your specific needs, and rates remain low*.

Find the right solution for your business.
Hear from others who bank with us.

*Loans subject to credit approval.

Trending Topics

First Bank in Asheville, NC: Serving the Local Community

If you live in the greater Asheville, NC, area and are searching for a nearby bank that meets your needs, look no further than First Bank¹. From Biltmore Village to Downtown Asheville to Historic Montford, we serve...

Commercial Mortgage – Wilmington NC

First Bank’s commercial mortgage lenders can put you in the right location for your Wilmington, NC, business to succeed. Our commercial real-estate loan specialists will offer you more than just a competitive...

Best Savings Account For Kids

Finding the best savings account for kids doesn’t have to be complicated. Savings accounts can foster good saving and spending habits, and your child will probably enjoy watching their savings grow. First Bank offers...

Find New Business Loans Near Me

First Bank offers a generous and versatile array of options to find new business loans near you. We were recently named one of the best banks in North Carolina by, so you can expect professional and...

What You Need to Open a Business Banking Account

Once you’ve started a business, the money is going to be coming in. You will need a business banking account to keep finances in order and manage cash flow. But, before you head down to your local First Bank,* grab...

Apply for a Flexible Small Business Loan in Jacksonville, NC

Forbes named Jacksonville, North Carolina as the #2 location for cost of doing business. Families, retirees, and business owners alike are continuously drawn to Jacksonville, making it one of the best places in NC to start...

3 Tips for Saving Money in Your 20s

Saving money in your 20s may seem like an impossible task, but did you know that your 20s is actually prime time to start setting money aside for you future? If you’re wondering how to save money in your 20s, follow...

Small Business Loans for Women in South Carolina

First Bank in South Carolina is dedicated to helping women entrepreneurs get their businesses up and running. That is why we offer a variety of small business loans with competitive rates. According to the National...

Find New Business Loan Options in Asheboro, NC

If you’re looking for a new business loan in Asheboro, NC, you’ve got options. First Bank offers a wide selection of loans to help business owners succeed in the competitive market. Whether you’re...

Best Small Business Bank in Wilmington, NC

If you’re looking for the best small business bank in Wilmington, NC, look to your local First Bank. Our business banking services are designed to meet the needs of businesses of all sizes by further increasing...