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Reply To: Hi,I have a small beekeeping and transport business. I currently have $9200 in the business bank account. I have a monthly loan repayment of $495 coming out. I also have a business line of credit that i have never used. Its interest rate is at 10.85%. I have an unexpected cost that came up with a truck of mine which will cost $5905. I also have to buy some more bees at $2020. That will leave me with around $1275 cash in my business bank account for the month of April. Cash will start coming in around June 1st at $1000 a week.I am wondering if it is better to spend my cash from my bank or use the line of credit instead? just incase another unexpected cost comes up

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Morning – good questions, the first thing I would ask is ‘what is a normal month for the business’ ie if all things are going well, how much do you typically bring in a month and how much goes out a month – to work out how much you typically make in a month.

Right now, from what I can see your bank balance end of April gets to $780 and then in May after making the loan repayment it is $285 and then hopefully it kicks back once the $1k payments come in from early June. I might have assumed you make a loan payment after your $9,200 balance which might be wrong.

If I look at your specific question, if you used the line of credit, say $5,000 then your interest is 10.85% so if you borrowed that for a year, then on straight line basis you will pay $580 in interest – however the interest compounds up over time if you are not making repayments over the interest cost per month, so it might be more that you take 3-6 months to the credit facility back to zero – so you will be paying the bank for 3 months use of their money – interest plus any fees they may charge. To roughly work out, just times the $ you need by 10.85% and divide by 4 and then add a bit if you are not repaying more than the interest to start with. Key is repaying or reducing the balance more than the interest cost.

Overall – I would say, how likely is it that other expenses could come up between now and June when the cash flow kicks in – and do you need to have a safety balance? Unless you can just draw down the line of facility?

The cost of the facility at 10% is a high rate – because it is a standby facility.

I am not sure I have helped – key question, do you need a safety balance in the bank or not? Also, how certain are you of the June revenue coming in – if not, then getting some safety zone in your cash reserves may not be a bad idea.

Note, I am not a financial advisor, nor providing financing advice!