Rules
Part of Lines of credit: terms to review before signing
Lines of credit checklist for after signing: dates, routine, exit
Lines of credit checklist for after signing: the dates to calendar, the monthly routine, the file to rebuild before renewal and the steps that close it cleanly.
A signed line of credit is not finished business. It is a relationship with obligations on both sides, running until somebody closes it, and a missed date or report is how a facility gets quietly cut. The work after signing is the calendar, the monthly routine, the renewal file and the exit.
What to take away
- Put every date from the signed agreement in your own calendar while you still have the signed copy to hand.
- Run a monthly routine, because late reporting can freeze availability.
- Repeat the preparation before any renewal conversation.
- At closing, check the public record for a UCC-3 termination instead of assuming the lien was released.
Six dates to set in your own calendar
Set these dates in your own calendar the week you sign, not only in the lender's system. This is the step people skip, and it is the one that keeps a facility from being quietly cut. Each date traces back to a clause in the agreement.
Notice periods, test frequencies and fee dates differ between agreements, so no general figure can stand in for yours. Read each one off your own signed copy and write the actual day count or date into the last column.
| Date | Where it comes from | What to do | Your figure |
|---|---|---|---|
| Renewal notice | Worked back from the maturity date | Reminder two weeks before | Notice days, in the agreement |
| Maturity | The signed agreement | Enter it in your own calendar | Maturity date |
| Reporting | The reporting duties clause | Reminder three business days ahead | Frequency and due date |
| Covenant tests | The financial covenants clause | Set it so you see the numbers first | Ratios and test frequency |
| Clean-up period | The clean-up provision, if there is one | Plan draws around the window | Length of the window |
| Annual or renewal fee | The fee schedule | Enter it with the other dates | Amount and date |
Set the calendar
- Reporting deadlineswith reminders
- Renewal or review datereminder well in advance
- Clean-up windowwork backwards
- Monthlycheck covenant ratios
- Before you need oneidentify second option
Where an agreement has a clean-up, the window matters most. According to the OCC's inventory financing handbook, a clean-up is typically timed to the low point in the borrower's operating cycle and extends for at least 30 consecutive days annually.
Where the dates come from: six clauses
Every date in the calendar traces back to six clauses, so find them again in the signed copy. Read the whole agreement properly afterward, but start with these, because they decide whether the facility is there when you need it.
Six clauses to find
- Commitment status.Committed for the term, or repayable on demand.
- Termination and renewal.Notice each side gives, and what renewal requires.
- Availability.How the limit is set and what counts toward the borrowing base.
- Financial covenants.Ratios you must hold and how often they are tested.
- Reporting duties.What you send, in what form, by what date.
- Default and acceleration.What triggers default and what lets the lender cut the limit.
Six clauses to find
- Demand clausecommitted or on demand?
- Conditions to each draw
- Clean-up or annual rest provision
- Fee schedule at a zero balance
- Security description
- Guarantee terms
If one clause is unclear, settle commitment status first. Committed for the term or repayable on demand determines whether you can plan around the money, and the rest of the calendar depends on the answer.
Confirm the open points in writing
A verbal answer is not an answer. Ask the lender to confirm each open point by email in the first month, and keep every reply with the signed documents, where it can be found when a question comes up later.
- Whether interest accrues on the daily balance or on some other basis.
- Whether there is a draw fee, and whether it is flat or proportional.
- Whether a minimum draw, minimum balance or minimum charge applies, including any unused-line fee.
- What moves the rate, if it is not fixed.
- What can reduce the limit, and whether notice is required.
- What renewal involves and what it costs.
- What reporting is required and how often.
- Who files the termination when the facility closes.
Get answers in writing
- Interest accrual basis
- Draw feeflat or proportional
- Minimum draw, balance, or charge
- What moves the rate
- What can reduce the limit
- Renewal process and cost
- Reporting requirements and frequency
- Who files termination
The monthly routine
A facility that is read only at signing is a facility that drifts. A short monthly routine records the draws, tests the floor, checks the reporting and reconciles the statement. The balance comparison takes a minute and is the earliest warning you will get.
- Record every draw with its purpose and its intended repayment date.
- Compare the lowest balance this cycle with the lowest balance last cycle.
- Check that reporting went out on time.
- Reconcile the charges on the statement against the fee schedule you were given.
- Confirm the availability figure, if your limit is derived from collateral rather than fixed.
A rising floor means the facility is absorbing something structural, and the balance examples show what that looks like. The remedy is a different structure rather than a larger limit. A term loan is the usual comparison to run at that point.
Reporting is the part of the routine that cannot slip. Late reporting can freeze availability, and the dates are already in your calendar with a reminder three business days ahead.
Rebuild the file before renewal
Before any renewal conversation, repeat the preparation you did before the first approach. Reconcile your statements, returns and bank records to each other before anyone else reads them, because the lender will read all of them together.
- Get your receivables and payables aging current.
- List existing debt and anything already pledged.
- Write down the days drawn, the average balance and the number of draws from the year just ended.
- Name what closed the gap each time. A draw with no identified repayment source is the start of a permanent balance.
- Decide what limit you actually need, so an offered ceiling does not become the request.
Before you approach anyone
- Write down cycle in days
- Estimate drawn days and average balance
- Estimate number of separate draws
- Name what closes the gap
- Reconcile statements, returns, bank records
- Get receivables and payables aging current
- List existing debt and pledged assets
Keep the estimates you made at the start beside the real figures from the year, because you will be tempted to revise the estimates once quotes arrive. What a lender does with the finished file is set out in lines of credit requirements.
Closing the facility
Closing is a step of its own, not simply the end of the balance. Four checks finish the job: the zero balance, the formal closure, the lien termination and the release of any guarantee.
- Confirm the balance is zero and the account is formally closed.
- Ask the lender for written confirmation that the line is paid and closed.
- Confirm who files the lien termination, then check the public record yourself.
- Ask what releases the guarantee, in writing, and keep the release.
- Keep the signed set. Facilities and their filings outlive memories of them.
Checking that the lien is really gone
A lender that takes a security interest in business assets usually files a financing statement under Article 9 of the Uniform Commercial Code. It is filed with a state filing office, and it stays on the record until a termination statement, commonly filed on the UCC-3 form, ends it.
Do not assume the lender filed one. Search the filing office's records for your business name, and look for the termination against the original filing. If it is missing, ask the lender to file it.
UCC Section 9-513 puts a clock on the lender once you ask. Within 20 days after the secured party receives your authenticated demand, it must send you a termination statement or file one, provided the conditions in that section are met. A written demand keeps the date on record.
Keep the file-stamped termination with the signed set. How a facility is priced while it is drawn and while it is not is covered in lines of credit.
Where to check anything specific
Fees, rates and conditions come from the institution and change. For neutral background on business financing, the SBA business guide and the FDIC's Money Smart for Small Business carry nothing being sold.
Common questions
When does the renewal work start?
Work back from the maturity date to the renewal notice date, and set the reminder two weeks before that.
Which single clause matters most?
Whether the facility is committed or repayable on demand. It determines whether you can plan around the money.
Is the monthly routine really necessary?
The reporting part is, because late reporting can freeze availability. The balance comparison takes a minute and is the earliest warning you will get.
What if I cannot meet a clean-up requirement?
Treat it as information rather than a paperwork problem. A balance that never clears is funding something permanent, and a larger limit makes that worse.
When should I look for a second option?
Before you need one. Arranging financing under pressure is where expensive products get chosen.
