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Original Thoughts is a series of promising new businesses ideas, highlights and approaches–whether it’s product news, market research findings, brand launches, creative design, industry happenings, hot trends, unique approaches, or entertaining developments, Zion & Zion is always keeping an eye out for innovative and entrepreneurial concepts that help us to help you, our clients.
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Whether you're a small, medium or large business, it's completely possible in the current economic climate that your financial institution(s) will cut off your credit, regardless of how well you're doing.
We've seen it happen to more than one business. I know, you may be thinking, "but I have an operating line of $200K or $2 million or $20 million with my bank, and I'm never late paying, and I never abuse the facility, so you can't be talking about me."
Yes, we're talking about you.
Unless your terms explicitly prohibit your credit facility from being withdrawn, sweeping action at management levels above that of the person or people you deal with at your bank, are routinely cutting off credit, even for good customers. I know that it doesn't make sense on a micro level, but it's happening at a macro level, and you need to be prepared.
If you have any doubts, just check with your bank and ask "do I have any guarantee that our company's credit facility will be there tomorrow or in a week or in a month?" The answer is often "no, your credit can be withdrawn or reduced at any time."
Now, if you're in a business that doesn't require borrowed cash for operations or growth, then this may not be a problem, but this generally isn't true of most businesses, especially those in growth mode.
So, make sure to ask yourself, "what would happen if some or all of our remaining credit was withdrawn tomorrow?" If the answer is that your business could not continue to operate, you may wish to consider drawing down against some of those facilities now and just sucking up the interest portion and offsetting that interest to the extent possible by placing the withdrawn dollars in stable short term investments.
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