Most businesses use corporate credit cards to manage petty expenses at one point or another. It makes sense, after all, they consolidate costs and allow you to make a payoff when it suits your cash flow schedule. What many new business owners and managers miss is that you can use revolving lines of credit to provide that kind of stability without the card and with a lot greater flexibility.
Credit lines for businesses provide cash to your account when it is needed while offering affordable interest rates and the ability to reuse the product by drawing on any unused balance any time. Like with a credit card, all you have to do is carry a balance below the maximum and keep payments current to have available cash on demand.
Secured vs. Unsecured Credit Lines
If you are expecting revolving credit accounts to have high interest rates and modest maximum balances, you would be partially right. Unsecured credit poses a high risk to lenders, so the programs offering unsecured lines restrict them and set high standards for access to large sums based on income and credit score. Secured credit lines are based on an asset’s value and the use of the collateral allows them to be as large as the lending program’s LTV limits allow.
If you need a bigger balance, you can either open a line with different collateral or choose a more valuable asset. Interest rates are controlled because the ability to seize and sell the asset to cover debt is a major risk reducer, and credit scores become less important for the same reason.
Managing Cash Flow With Lines of Credit
Many companies keep a dedicated credit line for cash flow management because they tend to come with grace periods that allow for short withdrawals with no interest if they are repaid within the window. Even when that is not the case, it means you have a certain amount of time before the costs start to add up, which is still more generous than many other forms of debt financing.
Using a high value asset, it becomes easy to meet cash obligations from the line while using all the incoming invoice payments to pay the line down so it can continue to be used. The result is a buffer that keeps outgoing cash ready even if customers pay late. Keeping multiple credit lines allows your company to do this while still having a resource for working capital opportunities that does not complicate your plan to meet obligations with financing. This financial tool is just that flexible.
