Whats the best way to utilize a business line of credit (LOC)

Use your line of credit like a revenue generator and emergency band-aid, not a credit card.
The golden rule: borrow short, pay fast, earn more than the interest costs.

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1. Bridge cash-flow timing gaps

• Draw 30-45 days before a big receivable or seasonal sales bump, then repay in full when cash hits.
• Keeps daily operating account > 90 days burn without locking up your own cash .

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2. Finance high-turn inventory or bulk discounts

• Example: supplier offers 2 % 10 / net 30 on $100 k order.
• Borrow $100 k for 20 days → interest cost ≈ $400 (@ 7 % APR); discount saves $2 k → $1.6 k net gain .

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3. Never fund routine overhead

• Payroll, rent, utilities should come from operating cash; if you’re using the LOC for these, treat it as a red flag to fix margins, not a Band-Aid .

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4. Keep utilization 30-50 % of limit

• Banks report to business bureaus; > 50 % drags PAYDEX/FICO SBSS and can trigger rate re-price or sweep freeze .

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5. Zero the balance at least once per quarter

• Proves to underwriters you can self-liquidate; sets you up for limit increases and prime-rate reductions at annual review .

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6. Automate minimum + 10 %

• Even if you plan to roll the debt, schedule auto-pay of minimum + 10 % principal; prevents late fees and accelerates payoff without thinking .

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7. Match term to purpose

• LOC = < 12 mo cycle; if the spend will last > 1 yr (equipment, build-out) convert to a term loan or lease before the LOC renewal date to avoid a balloon crunch .

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Quick checklist before each draw:

1. Will this generate cash within 90 days?
2. Can I repay the draw with that incoming cash?
3. Is the after-tax gain > interest cost?
4. Does the business absolutely need this cash infusion for temporary emergency purposes or to take advantage of a time-sensitive revenue generating opportunity?

If any answer is “no,” step away from your monitor and find another way.