Access to reliable sources of liquidity is important because it provides capacity to weather downturns and flexibility to take advantage of opportunities that arise. A revolving line of credit that can be borrowed and paid back over and over can be an essential part of a business’s liquidity arsenal — one you don’t want to lose.
Not using your line of credit doesn’t mean that you’ll lose access to it, but it can have repercussions. Unused lines of credit have an impact on a bank’s capital, so some banks may charge a non-usage or a commitment fee to compensate. Others may view your deposits with them as offsetting an unused line of credit.
In general, banks like when their customers are able to periodically pay their line of credit in full as it represents the line is being used appropriately. Often a permanent balance on a line of credit is a bigger red flag to a bank with a higher risk of losing access than one that hasn’t been drawn on in a while.
It’s very important to maintain open lines of communication with your banker. When your line of credit is coming up for renewal, meet with your banker to discuss how you expect to use your line of credit for the upcoming year. Depending on its intended use, the bank may want to adjust how much you have available under your line of credit to make sure it remains aligned with the needs of your business.
Answers provided by Pete Zeiser, President - Chesterfield Commercial at Midwest BankCentre. He can be reached at 314-633-6762 or pzeiser@midwestbankcentre.com.