A business line of credit can be a powerful financial tool—especially for Colorado businesses navigating seasonal shifts, growth spurts, or unexpected expenses. But like any tool, it works best when used wisely. At Redstone Bank, we’ve helped hundreds of local businesses make the most of their credit lines—and we’ve also seen the common pitfalls.
Here are the top 7 mistakes to avoid when using a business line of credit:
1. Treating It Like a Long-Term Loan
A line of credit is designed for short-term needs, not long-term financing. Using it to fund major capital investments or long-term projects can lead to high interest costs and strain your cash flow. For larger purchases, consider a term loan instead.
2. Borrowing the Full Amount Right Away
Just because you’re approved for a $50,000 line of credit doesn’t mean you should use it all at once. Draw only what you need, when you need it. This keeps your interest payments low and your credit available for true emergencies.
3. Ignoring the Repayment Schedule
Some business owners make the mistake of only paying the minimum due—or worse, missing payments altogether. This can damage your credit score and lead to higher interest rates. At Redstone Bank, we recommend setting up automatic payments or reminders to stay on track.
4. Using It for Personal Expenses
Mixing business and personal finances is a recipe for confusion—and potential legal trouble. Always use your business line of credit strictly for business-related expenses to maintain clear records and protect your liability.
5. Not Monitoring Your Credit Utilization
Using too much of your available credit can hurt your business credit score. Try to keep your utilization below 30–40% of your total limit. This shows lenders you’re managing your credit responsibly and can help you qualify for better terms in the future.
6. Failing to Plan for Repayment
Before you draw from your line of credit, ask yourself: How and when will I pay this back? Having a clear repayment plan ensures you don’t get stuck in a cycle of debt and helps you use your credit line strategically.
7. Not Reviewing the Terms Carefully
Every line of credit is different. Be sure you understand the interest rate, draw period, repayment terms, and fees before signing. At Redstone Bank, we walk you through every detail so there are no surprises down the road.
Let Redstone Bank Help You Use Credit Wisely
A business line of credit can be a game-changer—if you use it right. At Redstone Bank, we’re here to help you avoid these common mistakes and make smart, strategic decisions for your business.
📍 Stop by your local Redstone Bank branch
📞 Contact us to chat with a business banking expert