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Do I Need a Business Line of Credit?

January 11, 2023


Financing can make or break even the most successful Texas business. Whether you are an established name in Houston or a startup venture in Austin, there are times when cash flow can slow to a trickle. Opening a business line of credit ensures that funds are quickly accessible when you need them, and, unlike a traditional loan, you will not pay interest unless you use them. You have worked hard to build your business, safeguard it with a line of credit from Moody Bank. 


What is a Business Line of Credit?

A business line of credit is a commercial loan that functions much like a credit card. When approved, your loan amount is simply a credit limit from which you can borrow. Unlike a traditional loan, you do not have to receive the full dollar amount all at once. You can access your commercial line of credit as you need it, and only pay interest on the amount you borrow. A line of credit for a Texas business is a safety net that allows you to access cash when you need to cover business expenses. You simply borrow what you need and pay back when you can, utilizing this revolving credit line over the lifespan of the loan.



Why Do I Need a Line of Credit?

With a commercial line of credit, you have the flexibility to make purchases and cover shortages in your cash flow whenever the need arises. Funding can be accessed quickly, without the need for additional loan applications or lengthy approval processes. At Moody Bank, clients all over Texas are taking advantage of their business lines of credit to help with the following business needs:


Seasonal Inventory

When a product or service is seasonal or suddenly becomes popular, you may struggle to meet increased customer demand. With a line of credit, you can quickly order the extra inventory you need or increase your workforce to capitalize on seasonal or unexpected increases in your sales.


Equipment Repairs

Your earning potential should never be limited by the working condition of your equipment. With a business line of credit, you can pay for the repairs and updates that your equipment needs to keep your business running smoothly. 



There are many business expenses that you can cover with a credit card but paying your employees on time requires cash. If your accounts receivables come in short, a business line of credit can ensure that your employees do not suffer late paychecks.


Emergency Fund

Sometimes the best reason for opening a business line of credit is the one you haven't thought of yet. Unexpected and costly emergencies can derail your entire operation. A line of credit provides a pool of easily accessible funds to help your business survive any expenses you did not see coming.



Why Choose a Line of Credit Instead of a Loan?

A revolving line of credit allows you to cover multiple small expenses at various times with the same reservoir of money. A traditional loan pays out a large sum of money that is perfect for a single, short-term expense such as a commercial vehicle purchase or furnishing a new office. With a traditional loan, you start accruing interest immediately on the entire loan amount. Operating lines of credit provide access to commercial funds without the immediate cost of interest payments.


How Do I Choose Line of Credit for a Texas business?

Like many commercial loans, a business line of credit can be a secured or unsecured loan. The type of loan available to you can depend on your business’s available collateral, your credit history, and local bank policies. 


Secured Commercial Lines of Credit

A secured line of credit requires the borrower to offer real estate, equipment, or another business asset to back the loan. Should you borrow from your line of credit and fail to repay the bank, the assets offered as collateral can be collected by the financial institution. Your bank may require collateral in order to offer you the lowest interest rate, highest loan amount, and best repayment terms. 


Unsecured Commercial Lines of Credit

As it sounds, an unsecured line of credit does not require collateral to back the loan. Not all financial institutions offer unsecured commercial loans. If they do, you will often pay a higher interest rate on the loan to compensate for the increased risk to the bank.


If you are operating a newer business in Texas, you may not have assets available to provide as collateral for your loan. In this case you may be tempted to offer personal assets as collateral. Before you mingle business and personal finances, talk to a helpful loan associate. The local experts at Moody Bank can help you find the best loan solution for your unique situation.


How Do I Apply for a Line of Credit?

Applying for a commercial line of credit in Texas is similar to other bank loan applications. Because this loan is for your business, you will need to provide documents that demonstrate the health of both your personal and business finances. Some documents you can plan to submit include:


  • Your business EIN
  • Your personal social security number
  • Financial statements documenting revenue
  • Personal and business tax returns
  • Business plan and financial projections



Can I Use a Line of Credit to Pay my Employees?

A commercial line of credit is a great tool to have in your business’s back pocket. While a line of credit is perfect for covering your payroll in an emergency, employee salaries should not be eating up your line of credit each month. If your business is struggling with cash flow due to sluggish customer payments, there may be another financial product that can help. 


When you look at your company’s accounts receivable turnover ratio, you get a clear picture of how quickly your customers are paying their invoices. Strong business sales do not mean much if you are not collecting money efficiently. If you are constantly waiting for your customers to pay, our commercial banking team is here to help. At Moody Bank, we have the treasury management tools to help improve your accounts receivable turnover ratio and increase your cash flow. 


Get the financing your Texas-based business needs today!

Securing financing for your Texas business is a major decision. If you have questions about business lines of credit, or other financing options, speak with a trustworthy business lender at Moody Bank. We are happy to help you find commercial products that will help your business thrive. Give us a call or stop by one of our convenient locations near Houston, Galveston, New Braunfels, or Austin. 

Do I Need a Business Line of Credit? | Blog