Committed Credit Line

You need a line of credit from a bank. You might not use all of the money, but you need a commitment that this sweet, sweet cash will be available to you when you need it, on demand. What you really need is a “committed credit line.”

A committed credit line ensures that the bank keeps money available to you at all times. It’s bound by a legal agreement, and they can’t cut off that line of credit without a formal notification and process.

Keep in mind, though, that if you want to reserve capital, you’ll likely pay a rental fee to keep that money in the bank. Let’s say you have a line of credit worth $500,000, and you’ve only borrowed $300,000. The bank has opportunity costs, since it isn’t lending out the money it’s holding for you in reserves. So they’ll make you pay a commitment fee. Maybe it’s 0.5% on that $200,000 to balance out the fact they could have been using their own money elsewhere.