When business is strong, we sometimes forget about preparing for a rainy day. You don't want to be scrambling to get funds if you are in a cash crunch, so taking certain steps now could make the difference between recovery from a slight dent in the fabric of your business, to suffering from a total wipeout. Taking an approach from the book of pessimism, you should assume that you will someday fall short of cash.
Becoming aware of any problem that may create cash shortfalls early in the game is key to your survival. No matter how good a relationship you have with your bank, they will often be wary of borrowers who insist on having the money today. If one of the primary factors why you need a loan is because you failed to plan ahead, bankers are usually not very motivated in helping you out since they may consider you at higher risk for default.
The best time to arrange for a line of credit at your bank is actually when your business is operating with a positive cash flow. Knowing that you can borrow money up to a preset limit at any time not only gives you an added sense of security, but it avoids tipping off your bank that your business may be in trouble if and when you experience such a period of time.
While your business is probably using credit cards to maximize cash flow, credit lines are usually a lot cheaper to use if you find yourself in a cash flow pinch. Make sure you don’t leave lines of credit dormant as some banks will drop your line of credit if it isn’t used for a certain period of time, so be sure to check their use requirements.
If you are considering dropping a line of credit because there’s an annual cost, remember the rule of banking: If you really need the money, you probably can't qualify for the loan. Instead, make the banks compete for your business by checking around for competitive rates.