How to Access and Manage Your Business Line of Credit

A business line of credit is one of the most flexible financing tools available for small businesses. Unlike traditional loans that provide a lump sum, a line of credit allows you to draw funds as needed up to a predetermined limit, with interest charged only on the amount you use. It’s ideal for managing short-term cash flow needs, covering unexpected expenses, and funding business growth without taking on more debt than necessary.

In this guide, we’ll cover how to access your business line of credit, best practices for managing it effectively, and how to ensure it remains a valuable financial resource for your business.

Once you’ve been approved for a business line of credit with FundLocal, accessing the funds is straightforward. The credit limit is revolving, which means you can withdraw funds as needed, repay them, and then use the available credit again.

Steps to Access Your Business Line of Credit:

1. Log Into Your Account

• After approval, you’ll receive access to an online portal where you can view your credit limit, current balance, available funds, and repayment details. This portal allows you to manage your line of credit, request draws, and monitor activity.

2. Request a Draw

• Draw on the Credit Line: When you need to access funds, simply log into your account and request a draw. You can withdraw as much or as little as needed, up to your available credit limit.

• Instant Access to Funds: Once you request a draw, the funds are typically transferred directly to your business bank account. Depending on your bank, the funds may be available the same day or by the next business day.

3. Pay Interest Only on What You Use

• Unlike traditional loans, you’re only charged interest on the amount of the line of credit that you use. If you don’t withdraw funds, you won’t accrue interest.

Effectively managing your business line of credit is key to ensuring that it remains a valuable resource for your business’s financial health. Here are some best practices to keep in mind:

1. Use the Line of Credit for Short-Term Needs

A business line of credit is designed to help you manage short-term financial needs, such as covering seasonal fluctuations in revenue, bridging cash flow gaps, or handling unexpected expenses.

• Examples of When to Use:

  • Covering payroll during a slow period

  • Purchasing additional inventory to meet increased demand

  • Handling emergency repairs or one-time expenses

• Avoid Long-Term Use: Since a line of credit typically carries variable interest rates, it’s not ideal for long-term financing needs. Instead, consider term loans for larger, longer-term investments such as business expansion or major equipment purchases.

2. Monitor Your Credit Usage

It’s important to keep a close eye on how much of your credit line you’re using at any given time. Overextending yourself can lead to higher interest payments and difficulty managing your cash flow.

• Track Usage: Regularly review your account balance and available credit through the online portal. This ensures you know how much of your credit limit is available and how much you’ve already borrowed.

• Stay Below Your Limit: While it may be tempting to use the full amount available, maintaining a cushion of available credit can help you handle unforeseen expenses or take advantage of sudden business opportunities.

3. Make Timely Repayments

Just like any other form of credit, making on-time payments is crucial to maintaining a healthy financial relationship with your lender and ensuring continued access to your line of credit.

• Follow the Repayment Schedule: Your line of credit will come with a repayment schedule, which may require weekly or monthly payments based on the balance you’ve borrowed. Missing payments could result in late fees and could negatively impact your business’s credit score.

• Automate Payments: Consider setting up automatic payments to ensure you never miss a payment deadline. This also helps with managing cash flow more predictably.

4. Pay Off Balances Early When Possible

While lines of credit are flexible, it’s often a good idea to pay off balances as quickly as possible to minimize interest charges.

• Interest on Outstanding Balances: Since you only pay interest on the amount you’ve borrowed, paying off your balance early can save you money in the long run by reducing the total interest accrued.

• Rebuild Your Available Credit: By paying down your balance, you replenish your available credit, giving you more flexibility for future draws.

5. Use Your Line of Credit Responsibly

Using your line of credit wisely can help build your business’s creditworthiness and ensure that you continue to qualify for favorable terms in the future.

• Avoid Over-Reliance: Try not to rely on your line of credit for daily operational expenses. Instead, use it for strategic purposes like covering temporary cash flow shortages or seizing growth opportunities.

• Maintain Good Financial Habits: Consistently managing your line of credit, making timely payments, and using the funds for appropriate short-term needs will reflect positively on your business’s financial management skills.

6. Regularly Review Your Credit Terms

Your business line of credit may come with variable interest rates, which means the interest charged on outstanding balances could change over time. It’s important to stay informed about your current terms.

• Review Interest Rates: If you notice significant changes in your interest rates, consider whether it’s still the best option for your financial needs. You may want to explore other financing options if interest rates increase substantially.

• Check for Credit Limit Adjustments: As your business grows and demonstrates responsible credit usage, you may be eligible for an increase in your credit limit. Regularly reviewing your account allows you to identify opportunities to request additional funds.

When used wisely, a business line of credit offers several significant advantages:

• Flexibility: Borrow as much or as little as you need, whenever you need it, without having to take out a large loan upfront.

• Revolving Credit: Once you repay the borrowed amount, those funds become available again for future use.

• Interest Only on What You Use: You only pay interest on the portion of the credit you draw, making it a cost-effective solution for short-term needs.

• Fast Access to Funds: Draw funds quickly when you need them, without the long approval process that comes with other types of loans.

As your business grows, you may find that your current credit limit no longer meets your needs. Here are some indicators that it may be time to request an increase:

1. Consistent Cash Flow Needs

If your business regularly requires additional cash flow to handle seasonal revenue fluctuations or other short-term expenses, a higher credit limit can provide extra flexibility without needing to apply for new loans.

2. Business Growth Opportunities

When new opportunities for growth arise, such as expanding into a new market or launching a new product, a larger credit limit can provide the necessary capital to act quickly.

3. Positive Credit History

If you’ve consistently made on-time payments and managed your credit responsibly, you may qualify for a higher limit. A positive credit history makes you a stronger candidate for increased credit.

• How to Request an Increase: Log into your FundLocal account or contact our support team to request a review of your credit limit. Be prepared to provide updated financial documents, such as recent bank statements, to demonstrate your business’s growth and ability to manage a higher credit limit.

If you have questions about accessing or managing your business line of credit, FundLocal’s support team is here to help. Whether you’re looking for guidance on best practices or want to explore increasing your credit limit, we’re ready to assist you in getting the most out of your line of credit. Reach out anytime for personalized support!