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10 Ways to Use a Small Business Line of Credit

Mar 5, 2020

10 Ways to Use a Small Business Line of Credit

Some forms of small business financing might seem intimidating to entrepreneurs. For example, loans with the Small Business Administration (SBA) typically involve intense paperwork and ample amounts of red tape. Likewise, traditional bank loans have strict requirements and also present applicants with fierce competition.

On the other hand, there’s a select group of financing options that are more much borrower-friendly. This list includes merchant cash advances and ACH loans. Another charter member of the club is a business line of credit.

One of the primary ways a business line of credit makes your life easier is that there are almost no limitations on its use. With other loans, such as commercial real estate loans, startup loans, or equipment financing, there are non-negotiable parameters for how you can spend the money. Entrepreneurs often use these stricter loans to fund their major purchases because the dollar amounts are larger, and the financing is specifically structured in a way that simplifies the transaction.

For smaller purchases of all varieties, a business line of credit gives you a convenient payment method. It can also be used to manage your cash flow, which is difficult to maintain with the scourge of unpaid invoices and the seasonality of many small businesses.

“Entrepreneurs frequently encounter difficulties managing their cash flow as a result of seasonal credit demands and time gaps between capital needs and revenue realization,” explains social media strategist Scott Allen. “This is especially true of business startups during their early stages of development when they have not diversified enough to generate constant positive cash flow. Once the inventory has been purchased, it is necessary to ride out the cycle until accounts receivable have been collected. Without sufficient working capital, a serious cash flow problem could develop.”

While a business line of credit won’t insulate you from the natural ebb and flow of business, it can help to smooth out the ride. It’s a simple way to get capital on the fly, which is often what cash flow struggles demand.

“If your business has a low season and a high season, you may consider spending on credit during the low season to push through to the high season,” says USA Today. “If it takes some time to collect payments from customers after sending out invoices, a line of credit can help you cover any gaps.”

Of course, a business line of credit is more than just a cash flow manager. Here are 10 ways you can use this type of financing to benefit your small business:

  1. Handle big projects: If your business secures a large contract, the euphoria might be tempered by the fact that you’ll need to spend a substantial amount of money to fulfill the obligation. A business line of credit can provide the fuel necessary for you to ramp things up and deliver on the contract.
  2. Equip your business: Small businesses often have big equipment needs. Common examples include worksite tools, warehouse infrastructure, kitchen appliances, and office furniture. Even when bootstrapping, there will always be equipment that’s necessary to succeed.
  3. Fix broken equipment: As the old saying goes, “If it ain’t broke, don’t fix it. Just wait for it to break.” Regardless of your industry, you undoubtedly use equipment for your business. And it can be crucial to have capital available in the inevitable case of that equipment breaking down or failing in some way.
  4. Benefit from early payments: There are times when creditors will offer discounts or other incentives to those who pay their bills well ahead of the deadline. Taking advantage of these early-bird specials can be difficult when they’re not included in your standard budget, but a business line of credit can fill the gap. 
  5. Regular operating expenses: Aside from the major expenses associated with a small business, the day-to-day costs definitely add up. You can use a business line of credit to supplement your funds when the operating costs get to be too much to handle.
  6. Jump on a great opportunity: You can forecast your business expenses for the coming months, but it’s impossible to anticipate when a rare opportunity will arise. When you need to take advantage of such times, a business line of credit could make it possible to take action without overextending your finances.
  7. Build a safety net: Just as great things can come along expectedly, there will also be times when unfortunate events put a dent in your budget. Whether it’s a fire in your kitchen or a catastrophic software issue, it can be advantageous to have a buffer of money available to soften your landing.
  8. Hiring staff: Most small businesses have one or more employees, making staffing a major consideration and expense for any entrepreneur. By leveraging a business line of credit, you can get the financial boost necessary to bring on new staff when necessary.
  9. Enhance your technology: In order to compete in the modern business landscape, you need to keep your technology current. It’s true that you can sometimes get away with using ‘90s-era computers, but your website and any related digital tools need to be professional, efficient, and safe. And that’s only possible with high-quality technology.
  10. Improve your marketing: You can also use a business line of credit to bolster your marketing resources. This approach is mainly a long play, as your return on investment may take weeks, months, or even years. But you’ve got to invest in marketing if you want to stand out and attract new customers.

About the Author

Grant Olsen

Grant Olsen

Grant Olsen is a writer specializing in small business loans, leadership skills, and growth strategies. He is a contributing writer for KSL 5 TV, where his articles have generated more than 6 million page views, and has been featured on and Grant is also the author of the book "Rhino Trouble." He has a B.A. in English from Brigham Young University.

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