No matter how well a company might be doing presently, it still needs to have access to some extra money to meet an emergency. You may have been doing business for a long time, yet, at times, you can go wrong to anticipate its needs. For example, you can receive a big project out of the blue, and you may not have enough time to apply and then wait for the approval of a loan.
That’s where a business line of credit comes very handy. Just like credit cards, it allows you to withdraw money as per your needs. What’s more, you can save interest on the withdrawn amount by paying it earlier. Given its perks, the higher your line of credit, the better it is for your business.
Here is how you can efficiently increase the limit of your business line of credit:
- Good borrowing history
The first and foremost thing which concerns a lender is whether or not he will get his money on time. Regardless of how small the amount may be, no lender would like to give it to an irresponsible borrower. So if you can show him in black and white how consistent you have been at repayment of loans, it will enhance his trust in you.
You don’t have to be a veteran borrower. The majority of the lenders would not mind increasing your line of credit if you can consistently pay their installments for six months. Trustworthiness is the first a lender looks into his borrower.
- A robust business plan
Lenders would like to know how their money will be used. You need to come up with a reliable and comprehensive business plan where you are going to invest the borrowed amount. It is an essential step, so you must involve your whole team to craft it without leaving any loopholes whatsoever.
Don’t assume that lenders are a novice and will readily believe whatever you say. They will thoroughly study your proposal and ask questions. Therefore, you must research the facts and figures then and adequately weigh the pros and cons of your plan to win the confidence of a lender.
Put something as collateral can drastically boost your chances of getting an increased business line of credit. This collateral will minimize the risk for lenders. In case of default, the lender can sell the collateral items and liquidate his amount conveniently.
Several things can be put as collateral, including equipment, real estate, account receivables, inventory, and so on.
- Plan ahead
Perhaps the best time to apply for a spike in your line of credit is when you don’t need it the most. A smart businessman is always ahead of the time. He anticipates the needs of the future. It goes without saying that when your business is doing well, lenders won’t mind increasing your business line of credit by a significant margin.
Another benefit of planning is that it gives you time for preparation. For example, you need a loan in the next four months, and you can use these four months to pay off the expenses or improve your business credit score. Both these factors will play a critical role in your business’s line of credit.
- Hire an accountant to prepare financial statement
Lenders usually ask for financial statements because it helps them to have a detailed look at your business. A financial statement is the blueprint of an organization. A lender can see the past as well as the current performance of a business through this document.
Many borrowers don’t hire an accountant and prepare their financial statements on their own. Though it saves money, such financial statements mostly fail to impress lenders. Therefore, it is recommended to take the help of an accountant while preparing a financial report, especially if your business has been around for a long time. Using financial reporting software should make financial insights easy to record, understand, and act on, even if you’re not a finance expert.
- Invest in building a strong social media presence
This one is not as popular as the measures mentioned above, but apart from on-paper resources, lenders give a great deal of importance to the reputation of a business. In the modern-day, one of the best ways to judge a company’s image is to see the number of followers it has on various social media platforms.
Having more followers on Twitter, Facebook, and LinkedIn means your business has a broad customer base, and the lenders will get their money back. Online lenders entertain the social media following in particular before sanctioning the amount.
- Being guarantor
Being guarantor effectively means you will be directly responsible for making the payments if your business fails to keep up with the installments. According to the findings of Revere Bank, lenders can quickly increase your limit if you are willing to be the guarantor.
However, a lender can only consider you as a potential guarantor if you can prove your sound financial standing.
- Know the criteria of each lender
Though a vast proportion of lenders have standard rules to consider a potential borrower, depending on the lenders, sometimes the requirements can vary as well. For example, some lenders would consider healthy cash flow, while others would opt for collateral.
The final verdict
Line of credit is an essential addition to any business. It can aid you in an undesirable scenario, unlike any other type of financing. The only fallback is the limitation of amount but you can increase it without much difficulty by using the above methods.