As you are aware from our blog posts, Tommie Jones was asked by Mayor Miller to secure a $325,000 loan from First Federal. A special meeting will be held tomorrow, September 30th to sign the contract. This is with respect to the Kendrick Street Project for which the Town has not paid a dime. In fact our illustrious manager did not think this out in advance and thought it was a bank letter of credit which doesn’t make sense since that type of letter would say the Town has that kind of money which they don’t. When the agenda stated it is a “Business Line of Credit” for $200,000, my first words were OMG, they are getting a credit card type loan which is revolving and that is exactly the way it is. Watch them try and make payments and where are we going to get the Balance. I know the amount is not $325,000 but it is at least $300,000, but Mayor Miller seemed to believe you could ask for any amount above what was necessary, which is not how Banks work. Don’t know the interest rate and if the entire $200,000 is taken out, the Town should have fun making payments.
Good ole Tommie of course felt it would be easy and he should have noted from our files what difficulty Stacy Had in securing loans for various items, far less in amount than this line of credit. In fact it has been weeks for the Bank to make the decision and Tommie Jones had to provide far more information with Mr. Whitehead’s help. Tommie Jones can’t do anything on his own and feels that all he has to do is talk to someone and they will do as they ask. This should be another lesson for him in business. We might as well hire Michael Whitehead because Tommie Jones doesn’t know anything. Yet Curt’s Construction will not sign off until it is paid and we do not get reimbursed until Curt’s sign off.
Anyway Bank America provides a great explanation of what a Business Line of Credit is, if you are not familiar with it and I am including their information. Hope Tommie Jones will deposit checks on time and remember to pay on this revolving loan.
What is a small business line of credit?
A small business line of credit has more in common with a small business credit card than with a small business loan.
Like a small business loan, an unsecured line of credit provides a business with access to money that can be used to address any business expense that arises. Unlike a small business loan, however, there’s no lump-sum disbursement made at account opening that requires a subsequent monthly payment.
A small business line of credit is subject to credit review and annual renewal, and is revolving, like a credit card: Interest begins to accumulate once you draw funds, and the amount you pay (except for interest) is again available to be borrowed as you pay down your balance. As with a credit card, the lender will set a limit on the amount you may borrow.
Using a small business line of credit
The number-one reason to open a business line of credit is to gain access to short-term funding. Most businesses use these funds to support financing for operational expenses like supplies and payroll or for increasing inventory. Cyclical businesses often rely on an unsecured line of credit as a source of off-season working capital.
Unlike many small business loans, an unsecured line of credit is not designated for a specific purpose or purchase — it’s a good choice for small businesses looking for ways to better manage cash flow. Funds are typically drawn from the line of credit by using a business checking account, a small business credit card or even a Mobile Banking app.
Understanding secured and unsecured lines of credit
A small business line of credit is typically offered as unsecured debt, which means you don’t need to put up collateral (assets that the lender can sell if you default on the debt). Many unsecured lines of credit come with a variable interest rate and are available for sums ranging from $10,000 to $100,000.
For amounts greater than $100,000, you may be required to secure your line of credit with a blanket lien on your assets or a certificate of deposit.
What’s required to obtain a small business line of credit?
Be sure to research the specifics of any lender’s business line of credit requirements. For example, many banks will require a business to have been under current ownership for some fixed amount of time.
Rates for a business line of credit tend to be lower than those for a business credit card, which can charge more than 20% APR for purchases — and even more than that for cash advances.
Maintaining a line of credit in good standing may help build your business credit rating and position you for better loan terms if you seek future financing. Many small business experts suggest that first-time applicants should start a modest line of credit and pay off the debt quickly as a way of building a credit profile.
Keeping your small business finances running smoothly can often be a challenge in today’s fast-paced world. Depending on your specific business needs, a small business line of credit could be the simple solution you need to meet your goals for growth — at a pace that’s right for you.