In case you have a business line of credit that you want to expand or you want to build your business. you may need to increase your business credit limit. You can get a higher credit limit for your business line of credit in the 5 ways we will show you in this article. One of the advantages of getting a higher credit limit is that you will have access to more funds to sort out emergency issues that may arise in your business or you can even use to venture into more business opportunities.
It is not always easy to request for an increase in your business line of credit and get approvals. It can be very difficult at times. To avoid your application from being rejected, ensure that you prepare all your necessary documents and other requirements very well. We will briefly explain to you what a business line of credit is and the ways to get a higher credit limit for your business.
What Is A Business Line Of Credit?
A business line of credit can be described as a type of loan that helps borrowers to get funds up to an agreed limit at any time and they pay interest on the amount withdrawn from the credit line. It helps to provide short-term financing for any business as the need arises. It should be noted that a business line of credit is different from BUSINESS TERM LOAN. A business term loan requires the borrower to apply for a stated loan amount and interest is paid based on the total amount over a period with a structured repayment schedule. Business lines of credit are preferably used for smaller business transactions that can be repaid quickly because they have high-interest rates.
Steps To Access A Business Line Of Credit And How It Works
The following is a presentation of how a business line of credit works.
Step 1: The lender and the borrower agree on the stated limit amount of funds to be released and other things associated with it such as fees and the minimum monthly repayment amount.
Step 2: The borrower will be able to take out credits from the limit amount whenever they require to do so and must not exceed the limit.
Step 3: The borrower is expected to repay the outstanding debts either through one full payment or on monthly repayments.
Step 4: After paying off the outstanding debt, the borrower will have full credit available to them and can also withdraw credit whenever there is a need to do so in the future.
Benefits Of Business Line Of Credit
It has been stated earlier that there is a difference between business term loans and business line of credit. While business term loan charge interest based on the principal amount of the loan, business line credit on the other hand charges interest based on the amount presently withdrawn by the borrower. Because of this arrangement, businesses save money in terms of interest rate payments. This is because they are only charged for the number of funds they need per time rather than the total amount of credit limit given to them.
A business line of credit enables you to withdraw funds from the total credit limit approved whenever you want to do so. This in turn gives the business the space to explore, tap into extra funding only when they need it and also makes it flexible for the business to manage. Also, most business line of credit are unsecured and do not require borrowers to provide collateral to the lender before they can have access to the funding. A business line of credit enables you to make early full repayments without being charged an early repayment fee.
How To Get A Higher Credit Limit For Your Business Line Of Credit In 5 Way
Getting a higher credit limit will help you to tap into more business opportunities. The following are the five (5) ways you can use to get a higher credit limit for your business line of credit.
You Must Have Valid Reasons For Requesting A Higher Credit Limit
One of the ways to get a higher credit limit for your business line of credit is by having valid/concrete evidence/reasons explaining why you need your credit limit to be increased. For instance, if your business has more orders to meet up with, you can present your signed contract agreement or your purchase order to your lender. This will form the basis from which the lender takes the decision to approve an increase in your credit limit.
Giving out flimsy reasons why you need the increase in your credit line such as to tidy up over cashflow issues may cause your request to be rejected. Giving such flimsy reasons may give the lender the room to feel that you do not have the capability to repay the credit and may even end up withdrawing your business credit line.
Read Also: Increase Your Credit Limit With Ease – See How To And The Steps Here Now
Make Sure You Repay Your Credits On Time
Ensuring you have good and punctual repayments of your credit line is one of the ways you can get a higher credit limit for your business line of credit. If you have a good history of repaying your credits on time, your lenders will be known about it and have full confidence in getting you a higher credit limit on your business line.
Repaying your credit on time is a good habit. Other financial institutions and banks will always check and consider this before they will decide whether or not they will approve your request. Ensure you pay your other personal credits like cards, and loans, on time because keeping up credit repayments on time for all your credit facilities will boost your chance of getting a higher credit limit.
Ensure You Always Withdraw From The Business Credit Line Always
One of the ways to get a higher credit limit for your business line of credit is to ensure you always withdraw from the business line of credit always. Lenders may be unwilling to approve your credit limit if they notice that you have not been withdrawing from your business line credit. This will make them assume that you will not use the business line credit even after approving it for you. Lenders don’t get interest from the credit line if you don’t use it. So they will see it as you will not add value to them if they approve for an increase for you.
Make Your Revenue Figures Look Optimistic
One of the ways to get a higher credit limit for your business line of credit is by ensuring that your revenue figures look optimistic. This will give you a higher chance to get approval on your request and it is also an important factor lenders consider when they want to assess whether to approve your request or not. If your revenue is always increasing, it will make lenders and banks to be so willing to increase your credit limit. You must always update your revenue figures or your financial reports so that you can present them to the lender when applying for an increase in credit limit.
Know When It Is Appropriate To Apply For A Higher Credit Limit
Most banks and financial institutions review your credit line after a year your request has been granted. Requesting to get a higher credit limit for your business line of credit after a few months of getting a credit line may cause your application to be rejected. Also asking for an increase in credit limit once every few months can raise a red flag with your lenders. But in case your lender does not review your business line of credit after a year, then you can try to request an increase in credit limit. The main point to note here is that it must be requested after one financial year.
If your lender gives room for deliberations and discussions, you can approach them by asking for an increase of 10% to 25%. But in a situation where you request for anything higher than the percentages stated above, your request for an increase in credit limit might be rejected and you will have to wait for another few months. Apart from when or in a situation where you have a big contract or large order to attend to, it is not wise to request for an amount that is too high.
Conclusion
A business line of credit gives you the opportunity to tap into the investment opportunities available, it will also encourage you to spend beyond what you can afford. Requesting to get a higher credit limit for your business line of credit is one of the best ways to manage your business finances well.