Cash flow can be the most challenging part of keeping your business on track, but it gets a lot simpler once you develop a plan for filling in the gaps when your invoices do not reflect the cash in your checking account. Lines of credit have been a popular way to bridge those gaps for all businesses, not just those who rely on invoice billing. That’s because credit lines let you draw cash as needed for working capital, with no strings attached. They’re reusable like the balance on a credit card as well, but there are a few tricks to making the most of them.

Secured vs. Unsecured Credit Lines

Unsecured credit lines are a lot like cards for purchasing. They have relatively low limits with relatively high interest rates, and the most affordable rates go to the borrowers with the best credit. Secured lines of credit are different, though. Since they are attached to an asset that is valued above the maximum balance on your credit line, your company’s business credit score becomes less important to the approval process and interest rate. Similarly, the interest rates for secured credit lines are often drastically lower than for their unsecured cousins.

It makes sense to offer low rates when there is an asset whose value can be used to recoup the debt in the event of a default. After all, the risk to the lender is relatively low because there is a path to recovering the capital in any case. To make the most of a credit line as cash flow management, you really need to use a secured instrument. Think of the cost difference as comparable to the difference between a home equity credit line and a credit card.

Using the Credit Line Grace Period

Lines of credit are popular not only because you can reuse them without waiting for a new approval but also because the way interest is calculated provides you with a grace period after a withdrawal. Balances are paid from oldest to newest, but new balances have between two weeks and a month before interest applies to them. If you have no outstanding balance, that means you can withdraw cash, cover your obligations, then pay it back without a financing fee, provided your timing is right.

When your income should support your overhead but its timing is an issue, the right credit line can be all you need to cover those short gaps before merchant account deposits clear or before invoices are paid. Contact a lender today to learn more.