Following closely behind the homeowner’s home equity line of credit, is the business line of credit. Like the home equity line of credit, the business line of credit can hide a host of problems for a long time, until the line is maxed out.
Use your business line of credit to pay for things like large travel bills and printing bills, which will be reimbursed when the client’s payment comes in.
Don’t use this line of credit for ordinary expenses…it will come back to haunt you and perhaps destroy the business. Here’s how it gets out of hand. The small marketing company prints and delivers brochures for the client. The printing bill is $35,000. The printer needs to get paid NOW! The entrepreneur dips into the line of credit, issuing a check for $35,000 to the printer. By the time the client gets around to paying the printing bill, the entrepreneur has more bills due. The $35,000 is used to pay other expenses. The $35,000 debt sits there in the line of credit account and the business owner starts paying $325 in interest each month.
We know entrepreneurs who had a $250,000 line of credit maxed out that were withdrawn from one day to the next during The Great Recession. If a line of credit like that is maxed out, most entrepreneurs have no way to pay it off if it suddenly becomes due. Bottom line: keep it at zero balance most of the time.