A Credit Line Belongs to the Bank--Not to You


For many years some economists offered the soothing message that we Americans ought not to be too worried about the size of the federal budget deficit--after all, it was just money that we owed to ourselves. That of course may have been true in the 1950s and 1960s, when much of the rest of the planet was still rebuilding from World War II and our country was the only one generating excess cash. Today, however, when our huge and growing deficit is financed by money from China, Dubai and countless other nations, we no longer can have the assurance of saying that it's money we owe ourselves.

I thought about this issue after hearing more and more reports that law firms are increasingly paying staff salaries and even partnership draws by using their bank lines of credit. In a credit line arrangement, the firm borrows and repays at will up to the amount of the credit line, which is reviewed annually and extended, increased or terminated as the lender deems appropriate. The cost of such loans varies with factors such as the firm's bank balance, other services purchased, and credit rating.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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