Every business, however well managed, will encounter the occasional cash flow crisis. In fact, more successful businesses may encounter them more often, as taking on a major new account may require you to pay for raw materials, people and other resources before your new customer pays you. However, such potholes in the road can be smoothed out by taking out a business line of credit.
Operating like a credit card or overdraft, a line of credit gives you a limit against which you can borrow and repay at will, with interest being charged only on the amount you use. As a result, this type of revolving credit offers the maximum flexibility – meaning that it is very much to your advantage to increase your borrowing limit in preparation for future challenges. So how should you go about it?
Be a responsible borrower
The more you borrow and repay, the more lenders will want to do business with you. If you have several years’ history as a responsible borrower, you stand a very good chance of being offered a higher credit limit on request. In general, you should establish a track record of at least six months’ borrowing and repayment before asking for an increase, although a few years will put you in even better stead.
Improve your credit score
If you’re running a small company, chances are that lenders will consider both your business and personal credit score before reaching any decisions. In short, they will consider that if you handle your personal finances responsibly, you will do the same with business borrowing – and vice-versa, of course. If you can prove that you have enhanced both your personal and business credit scores, you will be in a very good position to request a larger credit limit.
Enhance your financial capacity
If your business has grown significantly since you established the line of credit, you’re in a very strong position to request a higher credit limit. Improved revenues or a smoother cash flow will clearly indicate your ability to handle more borrowing, and of course you will be able to provide more collateral if necessary.
Pay down other debts
Chances are your business has taken out several forms of finance, such as small business loans, invoice finance, or asset finance. Lenders will recognise this and be comfortable with it, but if you can cut your debt burden elsewhere this will give them more confidence in increasing your credit limit. Before you pay back any business loans, you should check that this will not involve onerous penalties for early repayment.
Build your social media presence
The connection here may seem less obvious, but having a strong following on Facebook, Twitter, YouTube or LinkedIn can add significant value to a business. If lenders can see that you have numerous online supporters, they may see your business as a better risk and consequently be more likely to up your credit limit.
As Managing Director of Cashsolv, he offers advice and support to overcome cash flow problems and identify possible underlying problems that can be addressed to ensure a positive future for your business. Carl continues an ethos of working with distressed businesses to help them overcome their financial problems.