Credit Line Can Equal Savings

February 14, 2003
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GRAND RAPIDS — National City Bank has introduced a small business equity line of credit that provides credit lines of $10,000 to $250,000 at rates lower than conventional business loans.

The equity line of credit has a couple of advantages over the traditional business loan or SBA loan — convenience and a cheaper rate, said National City’s Geoffrey Maguire, small business banking officer for the southwest corridor of the city.

Securing the line of credit can be quicker than going through the Small Business Administration documentation process, and the credit is secured by equity in the borrower’s home, he said.

“With the equity line the bank is taking a second position on the borrower’s property,” Maguire explained.

“We have some really solid collateral there; hence, we can obviously price that much cheaper than we could if we were doing an unsecured loan or if a form of collateral different from the borrower’s home is being pledged.”

The bank took some time and did some investigation before launching the new product, he noted.

“What we found was that small start-up businesses were taking out personal home equity loans to gather an equity injection for the business.”

Since customers were doing it already, the bank decided to provide them with a product that matched that need, he said, adding it gives customers a “nice option” for getting their small business financing in place.

The product was developed for the small business owner that has established a company in the past few years or has limited business assets, said Mike Price, executive vice president for small business banking.

The line of credit allows small business owners to borrow money in the name of their business and to establish credit in the business’ name.

Some business owners may want to borrow under the business’ name because there could be some tax advantages in terms of business deductions available to them by doing it that way.

A lot of times they simply do it as a way to keep business and personal banking records straight, Maguire said.

The borrower establishes a specific limit based on the company’s capital needs and projected growth, and the bank authorizes borrowing up to that specific amount.

Once the specific credit line is approved, the line can be accessed at any time without having to reapply.

“In today’s market, a lot of people need to finance receivables and that type of thing so they really need some type of line of credit to help manage the cash flow, especially during the initial phases of business operation.”

There’s no annual fee the first year and there are no closing costs involved in establishing the credit line.

“That’s kind of a big advantage for a small business, especially as they are keeping an eye on their expenses. It’s certainly much cheaper.”

The line of credit has a 10-year maturity. Typically, the business owner makes monthly payments, either interest-only payments or payments of 1.5 percent of the balance outstanding on the line.

Most people tend to go with interest-only monthly payments, Maguire said.

Small business owners can access the funds by check, Visa card, or the bank’s online and telephone banking services.           

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