Line of Credit Management

Document Type: Procedure
Version: 1.0
Last Updated: February 2026
Distribute To: CFO, Controller, Owner

Purpose

Establish procedures for managing the company's line of credit to optimize cash flow, minimize borrowing costs, and maintain banking relationships.

Why LOC Management Matters

Line of Credit Basics:

Revolving credit facility for working capital
Draw and repay as needed (up to limit)
Interest only on amount outstanding
Usually secured by receivables and/or assets
Typically renewed annually

Proper Management Enables:

Cash flow smoothing
Growth financing
Lower borrowing costs
Strong banking relationships
Covenant compliance

Line of Credit Overview

Know Your Facility:

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         LINE OF CREDIT SUMMARY
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Bank: _______________________
Facility type: ☐ Revolving LOC  ☐ Borrowing Base  ☐ Term LOC

Credit limit: $_________________
Maturity date: _________________
Interest rate: _______________
  ☐ Prime + _____
  ☐ SOFR + _____
  ☐ Fixed: _____

Fees:
  Commitment fee: _____% on unused
  Annual fee: $_________________
  Origination: $_________________

Collateral:
  ☐ Accounts receivable
  ☐ Equipment
  ☐ Real estate
  ☐ Personal guarantee
  ☐ Blanket lien

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KEY COVENANTS:

| Covenant | Requirement | Current | Compliant |
|----------|-------------|---------|-----------|
| Minimum working capital | $_________ | | ☐ Yes ☐ No |
| Current ratio | ≥ _____ | | ☐ Yes ☐ No |
| Debt to equity | ≤ _____ | | ☐ Yes ☐ No |
| Debt service coverage | ≥ _____ | | ☐ Yes ☐ No |

Reporting requirements:
  ☐ Monthly borrowing base certificate
  ☐ Quarterly financial statements
  ☐ Annual audited financials
  ☐ Other: _________________

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Borrowing Base (If Applicable)

Understanding Borrowing Base:

Borrowing Base = Eligible Receivables × Advance Rate

Typical formula:
  Total A/R: $_________________
  Less: Ineligible (over 90 days): $_________________
  Less: Concentration (over 25% one customer): $_________________
  Less: Related party: $_________________
  Less: Foreign: $_________________
  Less: Retainage (often excluded): $_________________
  = Eligible A/R: $_________________
  × Advance rate (typically 75-85%): _____%
  = Borrowing base: $_________________

Maximum available to borrow: $_________________
(Lesser of credit limit or borrowing base)

Monthly Borrowing Base Certificate:

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         BORROWING BASE CERTIFICATE
================================================================

As of: _______________

To: [Bank Name]

In accordance with the Credit Agreement dated _____________, 
the undersigned certifies as follows:

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ACCOUNTS RECEIVABLE ANALYSIS:

Total accounts receivable: $_________________

Less ineligible receivables:
  Over 90 days past due: $(_______________)
  Contra accounts: $(_______________)
  Concentration excess: $(_______________)
  Related party: $(_______________)
  Foreign receivables: $(_______________)
  Retainage: $(_______________)
  Other ineligible: $(_______________)

Eligible accounts receivable: $_________________

Advance rate: _____%

BORROWING BASE: $_________________

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AVAILABILITY:

Borrowing base: $_________________
Credit limit: $_________________
Available (lesser of above): $_________________
Current outstanding: $_________________
Remaining availability: $_________________

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CERTIFICATION:

The undersigned certifies that the above information is true 
and correct and that no Event of Default exists.

Signature: _________________________
Name: _________________________
Title: _________________________
Date: _________________________

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Draw Procedures

When to Draw:

Situation	Action
Planned cash shortfall	Draw 2-3 days before need
Unexpected shortfall	Same-day draw
Seasonal working capital	Draw before peak season
Growth financing	Draw as needed

Draw Request Process:

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         LINE OF CREDIT DRAW REQUEST
================================================================

Date: _______________

Current LOC balance: $_________________
Available: $_________________
Requested draw: $_________________

Purpose of draw:
☐ Cover accounts payable
☐ Fund payroll
☐ Bridge receivable collection
☐ Seasonal working capital
☐ Other: _______________________________

Expected repayment:
  Source: _______________________________
  Timing: _______________________________

Cash flow forecast showing need attached: ☐ Yes

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APPROVAL:

Requested by: _______________________  Date: ______________
Approved by: _______________________  Date: ______________

Bank contact: _______________________
Funded via: ☐ Wire  ☐ ACH  ☐ Transfer

================================================================

Draw Best Practices:

Do	Don't
Draw before desperate	Wait until overdraft imminent
Match draw to need	Over-draw "just in case"
Document purpose	Draw without approval
Coordinate with forecast	Ignore cash position

Repayment Procedures

Repayment Strategy:

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         LOC REPAYMENT PLANNING
================================================================

Current balance: $_________________
Monthly interest cost (at current rate): $_________________

Cash sources for repayment:
| Source | Timing | Amount | Confidence |
|--------|--------|--------|------------|
| Collections | Weekly | $ | High |
| Retainage release | Date | $ | Medium |
| Other | | $ | |

Repayment schedule:
| Date | Amount | Resulting Balance | Interest Savings |
|------|--------|-------------------|------------------|
|      |        |                   |                  |

Target: Pay to $___________ by _______________

================================================================

Repayment Best Practices:

Pay down when cash available (don't let it sit)
Target paying to zero at least once per year
Avoid using LOC as permanent working capital
Time repayments with large collections

Monitoring and Reporting

Daily LOC Monitoring:

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         DAILY LOC STATUS
================================================================

Date: _______________

Opening balance: $_________________
Draws today: $_________________
Payments today: $_________________
Ending balance: $_________________
Available: $_________________

Covenant check:
  Working capital: $_________ (Required: $_______) ☐ OK
  Current ratio: _________ (Required: _______) ☐ OK

Projected balance end of week: $_________________
Projected balance end of month: $_________________

Issues/concerns: ___________________________________________

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Monthly LOC Analysis:

================================================================
         MONTHLY LINE OF CREDIT ANALYSIS
================================================================

Month: _______________

USAGE STATISTICS:

Beginning balance: $_________________
Ending balance: $_________________
Average daily balance: $_________________
Peak balance: $_________________
Lowest balance: $_________________
Days at zero: _____
Days above 50%: _____
Days above 75%: _____

Interest paid: $_________________
Fees paid: $_________________
Total cost: $_________________

Effective borrowing rate: _____% 
(Total cost ÷ Average balance × 12)

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TREND ANALYSIS:

| Month | Avg Balance | Peak | Days at Zero | Cost |
|-------|-------------|------|--------------|------|
| Jan   |             |      |              |      |
| Feb   |             |      |              |      |
| Mar   |             |      |              |      |
| etc   |             |      |              |      |

Trend: ☐ Improving  ☐ Stable  ☐ Concerning

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UTILIZATION ANALYSIS:

Average utilization: _____% (Avg balance ÷ Limit)
Peak utilization: _____% (Peak balance ÷ Limit)

Utilization Assessment:
☐ Low (under 25%): Line may be oversized
☐ Moderate (25-50%): Healthy usage
☐ High (50-75%): Monitor closely
☐ Very high (over 75%): Consider increasing limit

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Covenant Compliance

Ongoing Monitoring:

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         COVENANT COMPLIANCE MONITORING
================================================================

As of: _______________

| Covenant | Requirement | Actual | Cushion | Status |
|----------|-------------|--------|---------|--------|
| Working capital | $_____ min | $_____ | $_____ | ☐ ✓ |
| Current ratio | ≥ _____ | _____ | _____ | ☐ ✓ |
| Debt/equity | ≤ _____ | _____ | _____ | ☐ ✓ |
| DSCR | ≥ _____ | _____ | _____ | ☐ ✓ |

Overall status: ☐ Compliant  ☐ At risk  ☐ Non-compliant

If at risk or non-compliant:
  Issue: ________________________________________________
  Projected cure date: __________________________________
  Bank notification: ☐ Required  ☐ Completed

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If Covenant Breach Anticipated:

Identify early - Don't wait until breach occurs
Analyze options - Can you cure with operational changes?
Contact bank proactively - Before they discover it
Request waiver/amendment - With supporting plan
Document agreement - Get everything in writing

Banking Relationship

Annual Line Review:

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         ANNUAL LINE OF CREDIT REVIEW
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Current facility details:
  Limit: $_________________
  Rate: _________________
  Maturity: _________________

Usage summary (past 12 months):
  Average balance: $_________________
  Peak balance: $_________________
  Total interest: $_________________
  Total fees: $_________________

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ADEQUACY ASSESSMENT:

Projected revenue (next 12 months): $_________________
Working capital needs: $_________________
Current limit: $_________________

Assessment:
☐ Limit adequate
☐ Need increase to $_________________
☐ Consider decrease to $_________________ (save fees)

================================================================

RATE COMPETITIVENESS:

Current rate: _________________
Market comparison: _________________
Negotiation opportunity: ☐ Yes  ☐ No

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REQUEST FOR RENEWAL:

☐ Renew at current terms
☐ Request increased limit
☐ Request improved rate
☐ Request covenant modifications
☐ Consider alternative lenders

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Relationship Management:

Activity	Frequency
Provide financial statements	Per agreement
Call/meet with banker	Quarterly
Proactive communication	As issues arise
Annual review meeting	Before renewal

Warning Signs

LOC Stress Indicators:

Warning Sign	What It Means	Action
Never pays to zero	Permanent working capital gap	Address root cause
Consistently near limit	Undercapitalized	Need equity or larger line
Increasing average balance	Growing dependence	Review cash management
Using for equipment	Wrong use	Get term financing
Covenant cushion shrinking	Risk increasing	Proactive bank discussion

Alternative Financing

When LOC Isn't Enough:

Need	Alternative
Equipment	Equipment loan or lease
Real estate	Mortgage
Permanent working capital	Term loan or equity
Growth capital	SBA loan, private equity
Project-specific	Project financing

Cash Flow Forecasting
Banking Covenant Compliance
Working Capital Management
Cash Management

Template provided by support.construction. Your line of credit is a tool—use it wisely, not as a crutch.

Purpose​

Why LOC Management Matters​

Line of Credit Basics:​

Proper Management Enables:​

Line of Credit Overview​

Know Your Facility:​

Borrowing Base (If Applicable)​

Understanding Borrowing Base:​

Monthly Borrowing Base Certificate:​

Draw Procedures​

When to Draw:​

Draw Request Process:​

Draw Best Practices:​

Repayment Procedures​

Repayment Strategy:​

Repayment Best Practices:​

Monitoring and Reporting​

Daily LOC Monitoring:​

Monthly LOC Analysis:​

Covenant Compliance​

Ongoing Monitoring:​

If Covenant Breach Anticipated:​

Banking Relationship​

Annual Line Review:​

Relationship Management:​

Warning Signs​

LOC Stress Indicators:​

Alternative Financing​

When LOC Isn't Enough:​

Related Documents​