Thursday, September 25, 2008

Nervous Borrowers Draw Down Lines of Credit

The Wall Street Journal (subscription required) reported a growing number of companies are hoarding cash and tapping lines of credit they don't actually need.


Fear that their bank lender may withhold it or unable to deliver the funds down the road.

With liquidity crunches in the interbank lending markets and the commercial paper markets, many borrowers are not waiting to make sure their own liquidity needs go unmet. GM, Sally Beauty, Jarden Corp. and Fairpoint Communications are just a few borrowers that have recently tapped or announced intentions to tap their lines of credit. GM recently announced it intends to draw down the remaining $3.5 billion of its $4.5 billion secured revolving line of credit.

Typically, these lines of credit would be quickly paid down. I suspect some of these companies will be letting the money sit in their own accounts till the storm passes over.

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Tags : credit crunch , business loans , accounts receivable , cash flow , lines of credit

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