Many businesses will have a line of credit which allows them to borrow based upon certain asset levels.

1. Accounts receivable. Typically, this will be to 75% or 80% of the accounts receivable balance. Receivables over a certain date like 90 or 120 days might be excluded. There may be other exclusions for certain types of accounts.

2. Inventory. 25% to 50% of inventory can be borrowed against. This could vary as well. Working in progress, inventory might be excluded. So too might be inventory that is on the water from overseas and has not yet been received into the states. Other specific things in inventory might be excluded as well.

Finally, there will probably be other caps involved on the total amount that can be borrowed on the line of credit. There will be a dollar cap in total, such as a million dollar line.

It’s important to know where you stand at any given point on your line of credit, how much have you borrowed, what you borrow in capacity and how much breathing room that you have. The borrowing capacity represents some of your availability on accounts receivable and inventory also, if applicable.

Typically, you’ll have to give the bank a statement once a month showing how you stand against your availability in a report they call a borrowing base certificate.

However, don’t wait until the end of the month to figure that out. This should be part of a weekly or daily dashboard.

The line of credit can be a great thing. It can give you some cushion over any bumps in the road that might occur on a short-term basis on your cash flow. Rather than having to worry about the timing of a particular check coming in from a customer, you can have your line of credit to draw back on I case the check comes in a day or so later. Having a line of credit is like being able to drive looking out over your front windshield farther out rather than having to look just over the hood of your car.

But just as a car has key figures on its dashboard, a key figure for you should be the availability on your line of credit.