Benefits of a Line of Credit with the Right Bank
2005 - A small or medium-sized accounting firm, like any business,
may need to borrow for a variety of reasons, such as working
capital requirements, to finance capital expenditures or leasehold
improvements, or to finance the purchase of a building. The
company may also need to borrow to cover upcoming tax payments
while it awaits payment of outstanding accounts receivable,
so that it does not have to dip into cash reserves. Additionally,
partners-to-be may need to borrow to finance their buy-ins
into the partnership. Or, individual partners may wish to
borrow funds for their personal or family needs.
line of credit may be the solution to any of these needs.
A line of credit represents a commitment by the bank to
lend the firm up to a maximum amount to cover a wide range
of business purposes. Furthermore, some financial institutions
will establish separate lines of credit for the personal
borrowing requirements of individual partners.
a Lasting Relationship
of credit reflects the potential for a long-lasting relationship
between the bank and the borrower, a relationship that benefits
both parties. Indeed, the extension of a credit line means
that the bank is determined to build a long-term relationship
with the professional practice.
advance commitment represented by a credit line enables
the bank to work more closely with the borrower not only
to lend money, but also to use its experience and status
within the business community to offer advice and counsel,
and to provide mutual referrals for new business relationships.
line provides an opportunity to plan ahead for access to
financing, even when the specific expenditure decisions
have not been precisely identified. It differs from a loan
that is applied for and approved for a single, specific
purpose. It does not need to be used, or drawn down, all
at once; rather, it can be tapped into as needed. Thus,
a line of credit represents a ready source of financing
for any business need or contingency that arises. It offers
the borrower a high degree of flexibility to finance its
current and forward needs.
example, the partnership may have decided that it needs
to expand its office space, or to invest in a new generation
of IT systems, but it has not decided on the timing of such
needs, or the actual amounts of financing required. Having
a line of credit in place provides an extra degree of security
that the funding will be there when needed.
during day-to-day efforts to develop new business and complete
assignments, partners may be too busy to develop detailed
financing plans for future requirements. Under such circumstances,
a line of credit offers the flexibility to finance their
needs, even within a short timeframe.
a line of credit is particularly useful when business slows
down, or when immediate prospects are weak. It is often
at such times—when a firm needs financing the most—that
borrowing is the most difficult. At such times, it may be
too late in the business cycle to seek borrowing capacity.
A line of credit, approved during better times, enables
access to financing during periods when business is more
relationship between the bank that provides a line of credit
and its borrowers can enhance business for both the accounting
firm and the bank. For example, an additional benefit of
working closely with a bank lender that provides a line
of credit is the potential for mutual or reciprocal new
business referrals. Many banks actively refer potential
new business to borrowers. For example, they may sponsor
networking events to bring together clients and business
contacts that can potentially do business with each other.
A bank may also be the beneficiary of business referred
to it by satisfied clients and other lenders with different
the Best Bank Partner
following are guidelines to consider when choosing a bank
for a line of credit:
The bank lender should be experienced in lending to accounting
practices, giving it an in-depth understanding of how
best to assist the practice.
The lender should have specific experience lending into
markets where the accounting practice has its core businesses.
For example, if an accounting firm specializes in dealing
with apparel firms, a lender with expertise in this industry
can be of greater service, perhaps even referring potential
new business to the firm.
The right bank will have been in existence for some time
and will have developed a reputation for strong customer
n The right lender for a particular practice is one whose
typical loan size matches the line-of-credit requirements
of the practice.
A good bank for the line of credit will also lend to the
accounting firm’s individual partners for a range
of personal needs.
A good bank is one where partners in the accounting firm
have timely access to senior lending officers at the bank
who have experience working with accounting practices
and can provide guidance as to business development and
even introduce the firm to potential new clients.
helps to work with a local bank that has a strong local
presence. For such a bank, a small or mid-sized accounting
practice will represent an important customer and will
receive a higher level of customer service.
An accounting practice should look for a bank that can
offer a reciprocal relationship between the borrower and
the lender; for example, where business referrals are
given and received on both sides.
It is helpful for a CPA firm to establish a line of credit
with a bank that offers a wide range of additional services
for a full range of financing needs, such as equipment
leasing, residential and commercial mortgages, web-based
cash-management services, and private client service.
Fliegel is a senior vice president and the head of
middle-market lending at Sterling National Bank, New York,
N.Y. Fliegel can be reached at email@example.com