While every small business owner wants to see steady, positive cash flow, slow months happen, and you might need to use credit to fill in the gaps. A low-interest business credit card can be an effective tool for a short-term cash flow boost, provided you can manage your balances effectively.
When to use a credit card to support cash flow
A credit card can be a helpful tool to support short-term cash flow needs, but it can become an expensive option if your balance grows unchecked. Knowing when to use your credit card and when another tool makes sense can help you manage interest charges and debt.
A credit card can be a good cash flow solution if you need to pay a supplier immediately but won’t receive client invoice payments until the end of the month. In this situation, you may be able to use your card to cover expenses and then pay the balance in full by the due date, helping you avoid interest charges while maintaining access to cash.
For long-term cash flow support, a business line of credit or business loan might be a better fit, especially if you expect repayment to take longer than your credit card’s grace period.
Use the grace period strategically
Most credit cards offer a grace period, allowing you to pay for purchases without interest for a set period of time. The grace period begins on the last day of your billing period and lasts 21 days or longer.1 When timed well, you can get around 51 days of interest-free borrowing by combining the grace period with the billing cycle.
As long as you know you have money coming in before the payment deadline, you can use your credit card as a short-term, interest-free loan.
Choose a low-interest credit card
While the goal should always be to pay your balance in full each month, in business, things happen. Some months, you might have to carry a balance. In these cases, a low-interest rate credit card can help keep your payments down.
While a standard credit card may have an interest rate of 20%, a low rate card might offer 10% or lower. For example, CIBC’s bizline Visa Card offers purchase rates as low as CIBC Prime plus 1.5%. If the prime rate is 4.5%, for illustrative purposes, that’s a rate of 6% (1.5% + 4.5%). If you have to carry a $3,000 balance for a month, you’ll pay $50 with a 20% interest rate or $15 at a 6% rate. That’s a potential monthly savings of $35.
Keep your credit utilization low
Your credit utilization ratio is a measure of how much of your available business credit is in use. As a rule of thumb, many lenders want to see a utilization ratio under 30%. A lower ratio shows that you can manage your credit. A higher ratio can signal that you’re reliant on credit.
A lower utilization ratio can also improve your access to cash flow when you have a slow month or need to pay for an unexpected expense. When you have more room available on your credit card, you can respond faster to short-term cash flow issues.
Build a cash reserve
Having a cash reserve is another key component when it comes to maintaining cash flow. A low-interest credit card can be a good option for short-term expenses that you know you can pay off before the due date. But cash may be the better choice when you know you won’t be able to pay your balance on time and in full. Using cash helps you avoid interest charges and a higher monthly balance.
Take control of your cash flow
A business credit card can be a useful tool when you need to fill in short-term gaps to maintain healthy cash flow. When used strategically, a credit card grace period gives you access to an extended period of interest-free borrowing. A low-interest card can help keep interest costs down when you occasionally need to carry a balance. By keeping your credit utilization low, you can ensure there’s always room to respond to an unexpected expense. Ultimately, pairing these smart credit habits with a solid cash reserve gives you the financial stability you need to protect your bottom line and focus on growing your business.
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