The Bank of England expects that house prices have seen the worst and that there are enough independent signals to indicate that the economy is in a position to grow into 2010. The temptation to look into a few months of stable-to-mildly-rising house activity and to extrapolate this into a much sought after upswing seems to have found a home with the central bankers as well. Unfortunately the news from Continental Europe is not so sanguine. Excluding France and Germany, whole economies seem to be teetering on the brink of disaster. Much as we like to think of Britain as an island unto itself, the fact is that we are inextricably linked to the fortunes of the rest of the globe and to Europe in particular. Not surprisingly as they are a mere 21 miles away as the crow flies. The continued massive spending splurge of the Treasury and the BoE seems to be holding the dyke for the time being. However, the fear is that once the boy pulls his finger out of the leak the weight of accumulated debt will drag the UK economy back into the abyss.On the other side of the Atlantic the news was equally grim with unemployment running at 10% and still increasing.Having said that, it is not all bad news. It has been a factor of this recession that while the headline numbers and news have been truly dire they do not seem to have turned into the scale of personal disaster that defined previous downturns. Yes, many people have lost their jobs and a certain number of homes have been repossessed but, overall, consumer spending has remained much more powerful than might have been expected.It seems to me that, for all the statements that this is the worst economic situation since the war, it does not actually feel like it. Does no one remember the period of mass localised unemployment of the 1980’s?And there are certain areas that are doing very well. As Simon Denham of Capital Spreads recently said, “On the plus side those nice guys at Goldman Sachs etc seem to be doing very well indeed but there is a grim side to this piece of information as well. The unfortunate fact is that what business that is being transacted is being done, very much, in the bankers favour. “With the virtual destruction of the investment banks in the States the survivors are able to make far bigger margins on their deals simply because the clients now have few options. They are unable to play Goldman off against Citi or Merrills or Lehman etc.”I know if I was investing or spread betting on equities where I would put my money.

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If you have a well developed business plan, strong credit, and reasonable collateral then it should not be unrealistic for you to obtain a business line of credit or revolving credit facility. Once you have been accepted by a number of banks or finance companies for a business LOC then it is time to determine which company has offered you the best terms. Foremost, you should look at the interest rate offered by the financial institution. It is a fixed rate credit line or will the interest rate increase/decrease with changes in the general economy.

 

Other considerations to factor into your decision regard the covenants regarding the credit line. Is the business LOC unsecured or is it secured by a piece of property that you have put up as collateral? Will you be required to personally guarantee the credit line? Additionally, many banks/financing companies require that your business (or your income) maintain a certain minimum level during the time that you are granted access to the revolving credit facility.

 

One of the other considerations that you must take into account is the nature of the credit line itself. If you draw down the line, what will be the repayment term? Will the business line of credit convert to a normal loan after the terms of the credit facility has expired?

 

One of the final considerations that you should take into account is if the business credit line of credit secured by your personal guarantee – how will the use of the credit facility impact your personal credit score? This is especially important if you have ongoing personal credit needs (such as property loans, credit cards, or car loans).

 

Once accepted for a business LOC, these are all questions that you must carefully consider when entertaining offers from a bank or finance company. If you have having difficulty making the proper determination based on the offers that you have received then it may be in the best interest for you to bring the proposals to your accountant who can assist you in making the best determination for both you and your business.

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The Big Butter Jesus, just North of Cincinnati. Music by Heywood Banks, version originally broadcast on the syndicated Bob & Tom radio show. All images except the first three reproduced with the permission of the web creationists at jeeebus (www.jeeeb.us) Accept no imitators.

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