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<March 2015>



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Which Small Business Lending Solution Is Right For You In A Pinch?

By: Robert A. Vandenbergh

According to the U.S. Small Business Administration, small businesses represent 99.7 percent of all employer firms in America, and these companies rely heavily upon owner investment and bank credit – averaging $80,000 a year – for financing.[1]

It is not unusual for these small businesses to experience a cash strain from time to time. Business solutions available in these instances include a commercial line of credit, a commercial term loan or a small business line of credit. These solutions can accommodate seasonal credit demands, necessary capital expenditures and cash flow fluctuations. 
  • A commercial line of credit is a preapproved line of credit to support working capital needs, such as inventory purchases, or to support the receivable collection cycle. This credit is paid back immediately once the company’s cash flow improves.  
  • A commercial term loan is used for business expansion, equipment purchases, leasehold improvements or other long-term capital investments and is paid back from incremental savings or profits from additional revenue generated.
  • A small business line of credit is for companies needing up to $500,000. The application and approval process is fast, and the SBLOC has a two-year draw period and no annual cleanup.
Here is an example of how this credit can help a small business. Suppose you’re a local print shop that has just landed a new client with long-term relationship potential. In order to complete the job, you need to purchase a more updated piece of equipment for which you don’t have sufficient capital readily available. A commercial term loan could help you acquire the equipment, and a line of credit could help you finance the inventory to complete the job. A financial solution could be presented that would allow you to meet your business needs while offering a manageable repayment arrangement that does not put a strain on the company’s finances.
Your financial advisor can help you decide which business solution is best for you. 
[1] U.S. Small Business Administration FAQs: Advocacy Small Business Statistics and Research; http://web.sba.gov/faqs/faqindex.cfm?areaID=24

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