Business Credit Center

Tips for managing revolving credit

Consider these tactics to use and pay off a revolving line of credit or credit card.

There are many types of credit products to choose from, each with its own benefits to small business owners. Revolving credit is unique since it provides the opportunity to use the account, pay it down, and reuse in the future. Unlike traditional loans, how you manage and pay down a balance may vary based on the product, use of funds, and cash flow fluctuations of the business.

There are two common types of commercial revolving credit. Credit cards typically carry higher rates than lines of credit and are best used for everyday purchases with the intent of paying off the balance in full each month before interest accrues. With lines of credit, you can access funds as needed, and carry a balance over a period of time with a gradual paydown based on your business' cash flow cycle. 

Whether it's a business line of credit or credit card, it's important to manage credit wisely, both in how you use it and how you pay it off.   

Best practices for using revolving business credit

Here are some ways to help ensure you optimize your use of revolving credit:

  • Be mindful of your credit limit: Revolving credit products have a cap on funds available to your business. If you spend beyond that limit, you'll likely pay additional fees and penalties.  

  • Avoid using it for personal expenses: You don't want to tie up your available business credit with expenses that don't benefit your company. Plus, separating your personal and business financials gives you a clean view of your business expenses come tax time. Consult a tax advisor for more information.

  • Know your cash flow cycles: Review your cash flow over the last 6-12 months to create a cash flow projection and understand how your cash ebbs and flows. If you see that fall is your busy season when you need to stock up on inventory, you can prepare to make larger purchases before the rush, and pay down your credit balance after you receive an inflow of cash from sales.

Tips to pay off revolving credit

Along with using credit comes the responsibility of paying it off. Here are some tips:

  • Make payments above the minimum to pay down your balance faster: If your cash flow cycle allows, consider making payments above the minimum to reduce the interest accrued on your balance. Extra payments increase the credit that you have available in case you need to jump on an opportunity or your business needs change. You should also consider signing up for automatic monthly payments.

  • Don't strain your cash flow: Avoid paying so much toward your revolving credit that it hurts your business and you don't have cash elsewhere — risking the financial health of your business. Manage your credit strategically, so you can strike a balance between paying down what you owe and meeting your business needs.

  • Be proactive: If you might have trouble making a payment, talk to a banker right away to see what options are available. Don't wait until you've missed a payment, as doing so will hurt your credit in the long run. Working with your banker to get through a tough period can help you keep access to your account for the future.

Lastly, be sure that your revolving line of credit or credit card is meeting your current needs. It might be that one is better for you than the other, so continue to talk with a banker about your current account usage as well as other credit products that might help meet desired goals.  

If you're doing well with the credit you have now, find out if you're ready to take on more credit.