The Benefits of a Line of Credit with the Right Bank

By Jeffrey Fliegel

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OCTOBER 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.

A bank 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.

Creating a Lasting Relationship

A line 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.

The 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.

A credit 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.

For 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.

Often, 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.

Additionally, 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 challenging.

The 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 business niches.

Identifying the Best Bank Partner

The 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 service.
    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.
  • It 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.

Jeffrey 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 or 212-575-4448.




















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