How to Use Your Business Line of Credit Wisely

As a business owner, you need to borrow money wisely so you don’t get trapped in debt. If you are using a line of credit, you might be tempted to take more money than you can pay back but you should resist the temptation. What is a line of credit? It refers to an open-ended but flexible loan that allows you to borrow funds up to a specific credit limit.

Here are some tips that will help you to use your line of credit (LOC) wisely:

Choose Your LOC Wisely

Do you want to have some funds available to use at your discretion? A line of credit will allow you to spend money and pay interest on what you have borrowed. You can choose from the following types of LOCs:

Overdraft line of credit – when you end up spending more than is available on your checking account, this will be considered a small loan.

Home equity LOC – the equity of your home acts as collateral for your debt

Credit card – with this LOC, you can borrow until you reach the limit then repay and borrow as many times as you want.

Do Not Max Your Credit Limit

When you max out your credit limit, you will end up harming your credit score as well as your business. You can avoid higher premiums and interest rates by spending less than 30% of your available credit. If possible, you should pay your balance in full at the end of every month and stop buying things unnecessarily. Making sure that you pay your balance on time will also help you to avoid late fees.

Check Your LOC Accounts

You need to visit your bank or log into your LOC accounts to look for cuts on your credit limit, changes in rates of interest, and notices of a delayed payment. Make sure that you compare your paper and online statements to see whether you have a delayed payment notice. If you see any discrepancy, you need to visit the bank or get in touch with customer service.

Do Not Take out More Credit

You need to work on building and boosting your credit score by ensuring that you pay your line of credit on time. Moreover, you should only have three credit cards at the most. You should not be lured by special offers and discounts into taking out another credit account unless it offers a huge benefit that offsets the terrible rates of interest that you currently have.

Read the Fine Print

You need to use the LOC up to the maximum that you are allowed; this is especially true if your business is not performing well. It would be bad for your business to carry a credit card balance at the end of each month. To avoid problems, you should not be dealing with many business lines of credit.

Use the LOC Appropriately

Because the funds in your line of credit are at your fingertips, it would be easy to get into trouble by overspending.

You should use your LOC in the following situations:

Emergencies – LOCs are great for emergencies because they offer quick access to cash just like credit cards.

To get discounts – you should not have to pass on a discount because of slow cash flow. If you get the opportunity to buy things in bulk at a discount, you can use your LOC to increase your bottom line.


Following the above tips will help you to use your line of credit efficiently and effectively. If your business is still growing, you should try to keep your expenses as low as possible.  

FG Editorial Team
The Founder's Guide Team - Asian Associates with dynamic elements out to make a change.Thank you for visiting our site! If you do have any questions or inquiry, feel free to contact us through our links and please don't forget to follow our social media accounts. It would be our pleasure to help you in any way we can. Always Remember: "Proceed to Succeed". Hoping to hear from you soon!