How To Increase Business Line Of Credit & Is It Worth It

A business line of credit is a financing option that allows businesses to access funds up to a certain credit limit, which can be used as needed and paid back over time. Increasing a business line of credit can be beneficial in providing additional working capital, funding unexpected expenses, and taking advantage of growth opportunities. 

However, it is important to carefully consider the potential costs and risks associated with increased debt before pursuing this option.

Key Points:

• A line of credit allows you to spend up to the limit on business expenses. 
• If you encounter larger expenses or growth opportunities, an higher business line of credit limit may come in handy. 
• In some cases, it’s possible to tap into a larger credit limit. 

How Much Business Line Of Credit Can You Get?

The amount of a business line of credit that a company can get depends on a variety of factors, including the company's creditworthiness, financial history, and the lender's underwriting standards. Generally, business lines of credit can range from a few thousand dollars to several million dollars.

The credit limit for a particular business is determined by the lender, based on the risk associated with lending to that business. It is important to note that the credit limit may also be adjusted over time, depending on the borrower's payment history and overall financial performance.

What Is Considered An Increase In A Business Line Of Credit?

An increase in a business line of credit typically refers to obtaining additional credit beyond the original credit limit that was approved by the lender. This may be done by submitting a request for a credit limit increase to the lender, who will then evaluate the business's creditworthiness and financial performance to determine if the increased credit limit can be granted.

An increase in a business line of credit can provide the borrower with additional funding to support business operations, take advantage of growth opportunities, or cover unexpected expenses. However, it is important to carefully consider the potential costs and risks associated with increased debt before pursuing this option.

Reasons Why You Might Like To Increase Your Business Line Of Credit

As a business owner, there is a wide range of reasons for increasing your business line of credit.

A few include:

• Expanding operations or growing a business
• Increase in accounts receivable
• Slowed accounts receivable collections
• Obsolete inventory
• Need for working capital
• Need more flexibility in funding 
• Planning a capital investment
• Planning marketing and advertising campaigns
   

When Should You Ask For A Credit Limit Increase For Your Business?

If you want to ask for a credit limit increase for your business, timing matters. A few examples of opportune moments include:

• Good payment history: If you’ve proven you can consistently make on-time payments for at least six months, that’s a positive sign to the lender.
• Good business credit score: Most lenders prefer to extend funds to businesses with a good credit score. If your credit score rises over time, it might be a good time to ask for a higher credit limit.
• Anticipate making a large purchase in the near future: If your business is gearing up for a big purchase, making the request for a larger line of credit can come in handy. 
• Having a few well-performing accounts with the same lender: If you consistently make on-time payments to your lender across multiple accounts, they might be willing to boost your line of credit. 

“Data beats emotions.” — Sean Rad

What Is The Best Way To Get Your Line Of Credit Increased?

Lenders want to work with borrowers who make their life easy. If you want a higher credit limit approved, consider using the following strategies.

• Demonstrate a track record of responsible credit use: Making on-time payments can go a long way.
• Illuminate changes to your business: Provide updated financial statements, including income statements and balance sheets. If your business is financially healthy, that’s important to show your lender.
• Draft a comprehensive business plan: Use a detailed business plan that outlines your growth projections and financial needs. This shows your lender what plans you have for the funds.
• Building a strong relationship with your lender or financial institution: Make every effort to make on-time payments to your line of credit. Try to be easy to work with.
• Shop around for competitive rates and terms: A larger line of credit can lead to more borrowing costs. Consider shopping around for the best business line of credit rates to avoid overpaying.

How To Ask For An Increase In Your Business Line Of Credit?

If you're running a business and need more credit to finance your operations, you may want to consider requesting an increase in your business line of credit. Here are some steps you can follow to make a successful request:

• Review your credit history: Before you make your request, review your business credit history and make sure that it's in good standing. This will help you make a stronger case for why you need an increase in credit.
• Determine how much you need: Review your business financials and determine how much additional credit you need. Be specific and provide a detailed breakdown of your expenses and how the additional credit will help you achieve your business goals.
• Contact your lender: Schedule a meeting or call with your lender to discuss your request for an increase in credit. Be prepared to explain why you need the additional credit and provide documentation to support your request, such as financial statements and cash flow projections.
• Make a strong case: Explain to your lender how the additional credit will benefit your business and help you achieve your goals. Provide examples of how you've used your current credit line and how the additional credit will enable you to take advantage of new opportunities.
• Be prepared to negotiate: Your lender may not agree to your initial request for an increase in credit. Be prepared to negotiate and find a compromise that works for both parties. You may need to adjust the amount of credit you're requesting or provide additional collateral to secure the loan.
• Follow up: After your meeting or call with your lender, be sure to follow up in writing to summarize your request and any agreements you reached. Keep the lines of communication open and be proactive in addressing any concerns your lender may have.

By following these steps and making a strong case for an increase in your business line of credit, you can improve your chances of getting the additional financing you need to grow your business.

Does Increasing A Line Of Credit Affect Your Business Credit Score?

An increase in your business line of credit does not necessarily have a direct impact on your business credit score. However, there are a few factors that could indirectly affect your score.

Firstly, if your lender performs a hard credit inquiry when reviewing your request for an increase in credit, this could temporarily lower your credit score. A hard inquiry is a credit check that is initiated by a lender or creditor when you apply for credit, and it can have a negative impact on your credit score. However, the impact is typically short-lived and your score should recover within a few months.

Secondly, if you use the additional credit that you receive to make purchases or payments that are reported to credit bureaus, this could affect your credit utilization ratio. Your credit utilization ratio is the amount of credit you're using compared to the amount of credit you have available. A high credit utilization ratio can negatively impact your credit score, so it's important to use your credit responsibly and keep your utilization ratio low.

Finally, if you're able to use the additional credit to grow your business and improve your financial stability, this could have a positive impact on your credit score over time. For example, if you use the credit to purchase inventory and increase sales, this could improve your revenue and cash flow, which could in turn improve your creditworthiness.

In summary, while an increase in your business line of credit may not directly impact your credit score, there are a few factors that could indirectly affect it. It's important to use your credit responsibly, keep your credit utilization ratio low, and focus on growing your business to improve your creditworthiness over time.

How Much Of An Increase Can You Get?

The amount of increase you can get in your business line of credit will depend on several factors, including:

• Your credit history: Lenders will typically review your credit history to determine your creditworthiness and assess the risk of lending to you. If you have a strong credit history with a good payment record and low credit utilization, you may be able to qualify for a larger increase.
• Your business financials: Lenders will also review your business financials, including your revenue, cash flow, and profitability, to determine your ability to repay the loan. If your business is growing and generating strong cash flow, you may be able to qualify for a larger increase.
• Your collateral: If you're securing the loan with collateral, such as accounts receivable or inventory, the amount of collateral you have will also play a role in determining the amount of credit you can qualify for.

In general, the amount of increase you can get in your business line of credit will depend on your lender's policies and underwriting criteria. Some lenders may be willing to increase your credit line by a small percentage, while others may be more flexible and offer larger increases. It's important to discuss your specific needs and financial situation with your lender and provide any documentation they request to support your request for an increase.

“Take risks. Failure is a stepping stone to success.” — Arianna Huffington

Reasons Why Your Credit Limit Increase May Have Been Denied

There are several reasons why your credit limit increase may have been denied, including:

Poor credit history: If you have a history of late payments, missed payments, or defaulting on loans, it could signal to the credit card company that you are a high-risk borrower. They may be hesitant to increase your credit limit if they feel that you may not be able to pay back the additional amount.

High credit utilization: If you are using a significant 
portion of your available credit, it could be a red flag for the credit card company. They may worry that increasing your credit limit would lead to more debt and a higher risk of default.

Low income: Credit card companies may look at your income when determining whether or not to increase your credit limit. If your income is too low, they may feel that you may not be able to handle the increased debt.

Short credit history: If you have not had a credit card for very long or have a limited credit history, the credit card company may be hesitant to increase your credit limit. They may not have enough information to determine whether or not you are a responsible borrower.

Recent credit inquiries: If you have recently applied for other credit cards or loans, it could be a red flag for the credit card company. They may worry that you are taking on too much debt and may not be able to handle an increased credit limit.

Changes in credit policy: Credit card companies may change their credit policies from time to time, which could affect your eligibility for a credit limit increase. Even if you met all the criteria in the past, you may no longer be eligible if the company's policies have changed.

Mistakes on credit report: Sometimes credit reporting agencies may make errors on your credit report, which could negatively impact your credit score. If the credit card company reviews your credit report and sees these errors, they may be hesitant to increase your credit limit.

If your credit limit increase was denied, it's important to understand why and take steps to improve your credit score or address any concerns the credit card company may have.

Other Ways To Increase Funds Of Your Business

An increased business line of credit isn’t the only way to fund your business needs. Other options to fund your business include:

• Business credit card
• Commercial equity line of credit
• Equipment financing
• Crowdfunding
• Angel investors
• Venture capital funding

5 Proven Strategies For Increasing Your Business Line Of Credit

Here are five proven strategies for increasing your business line of credit:

• Improve Your Credit Score: Your credit score plays a crucial role in determining your eligibility for a business line of credit. Make sure to pay your bills on time, keep your credit utilization low, and monitor your credit report regularly to identify and address any errors.
• Increase Your Business Revenue: Lenders typically look at your business's revenue when deciding how much credit to offer. Boosting your revenue through sales growth, marketing, or expanding your product offerings can increase your chances of securing a higher line of credit.
• Reduce Debt: Lenders prefer to see businesses with low levels of debt. By paying off outstanding loans or reducing your credit card balances, you can improve your credit utilization ratio, which is a key factor in determining your creditworthiness.
• Maintain Good Relationships with Vendors and Suppliers: Building strong relationships with your vendors and suppliers can improve your chances of securing a higher line of credit. Consistently paying your bills on time and negotiating favorable payment terms can demonstrate your creditworthiness to potential lenders.
• Provide Collateral: Providing collateral, such as property or equipment, can give lenders the confidence to extend a higher line of credit. Collateral can act as security for the lender, reducing the risk associated with lending to your business.

The Do's And Don'ts Of Increasing Your Business Line Of Credit

Here are some do's and don'ts to keep in mind when increasing your business line of credit:

Do's:

• Do know your credit score and address any issues before applying for an increase.
• Do keep your credit utilization ratio low by paying bills on time and reducing debt.
• Do maintain good relationships with vendors and suppliers by paying bills on time and negotiating payment terms.
• Do be transparent with your lender about your business financials and future plans.
• Do use your increased credit wisely to grow your business and improve your cash flow.

Don'ts:

• Don't apply for multiple credit lines at the same time as it can negatively affect your credit score.
• Don't use your credit for personal expenses or other non-business-related expenses.
• Don't max out your credit line as it can negatively impact your credit score and repayment ability.
• Don't make late payments as it can negatively affect your credit score and future credit opportunities.
• Don't ignore the terms and conditions of your credit line as it can lead to penalties, high interest rates, and other negative consequences.

What To Look For In A Lender When Increasing Your Business Line Of Credit

When increasing your business line of credit, it is important to choose the right lender. Here are some factors to consider when selecting a lender:

• Reputation: Look for a lender with a good reputation in the industry. Check online reviews and ratings to gauge customer satisfaction and how the lender conducts business.
• Interest Rates and Fees: Compare interest rates and fees offered by different lenders. Choose a lender with competitive rates and transparent fee structures.
• Credit Limit: Consider the maximum credit limit that the lender is willing to extend to your business. Choose a lender that offers a credit limit that aligns with your business's needs.
• Requirements: Understand the lender's requirements for qualifying for an increased credit line. Choose a lender whose requirements align with your business's financial situation and future plans.
• Customer Service: Consider the quality of customer service offered by the lender. Choose a lender that is responsive and willing to work with you to address any issues or concerns that arise.
• Flexibility: Look for a lender that offers flexible repayment terms, such as the ability to make early repayments without penalty, or the ability to adjust the repayment schedule to align with your business's cash flow.
• Additional Services: Consider if the lender offers additional services that could benefit your business, such as financial planning or other forms of lending that could be useful in the future.

Final Words

An increased credit limit could transform the opportunities available to your business. As a business owner, consider your financial position before making a request. If your business has improved its financial standing recently, it might be the right time to ask for a request.