For every small business owner, there comes a time when you find yourself in a cash flow crunch, wishing you had extra money on hand to cover your expenses. Prepared business owners can avoid this moment of panic by taking out a business line of credit.
A line of credit works just like a credit card: you’re given access to a pool of funds and can draw on the capital whenever you want or need to. You’ll only pay interest on the money you take out and use—and once you pay it back, your line of credit gets refilled to its original amount. (That’s why it’s called “revolving” credit.)
Say you already have a line of credit for your business and you’re enjoying its many benefits, though. You might want to have an even bigger pile of cash on hand to use whenever you need it.
Luckily, there are a some good ways business owners can increase their existing line of credit. Keep reading to learn them all.
If you always repay your draws on your line of credit in full and on time, the lender will see that you have a strong, trustworthy borrowing history. If you ask your lender for an increase in your line of credit, they might reward your good behavior with a bigger pool of funds.
Building your repayment history will take some time, though:
Most lenders won’t consider an increase in your line of credit until you’ve proved yourself a consistent and trustworthy borrower for at least 6 months. Once you’ve built up a history of steady repayment, you should ask for an increase in your line of credit if you think you need more funds.
If you’ve taken out a small business loan before, you know that lenders look at your personal credit score very closely. In fact, the strength of your credit score is probably the single most important factor in your loan application process.
Why is your personal credit score so important?
Since you’re looking to fund your small business, your personal financial habits have a much bigger impact on how you’ll run your business. If lenders see that you’re responsible with your personal finances, they’ll figure that you’ll be responsible with your business finances, too.
Your personal credit score played a big role in securing your initial line of credit and will be important for upping that line of credit when you need more capital. If you can prove that both your personal and business credit ratings have improved since you first took out your line of credit, lenders will be more likely to increase your existing line of credit. You’re a less-risky borrower—and you have the credit improvement to show it.
Need some tips on how to build your credit?
Check out Fundera’s free eGuide on boosting your business’s credit history.
If your business has increased its financials since you’ve taken out your business line of credit, you might be eligible for a bigger line of credit.
Lenders might be willing to increase your line of credit if your business is bringing in more revenue or you’re seeing consistently strong cash flows.
Well, stronger financials mean that you have more capital to cover your line of credit repayments, plus interest. Keep in mind that bigger lines of credit require more collateral, so you might also be able to increase your existing line of credit if you have more collateral to offer up.
To see if you qualify for a larger line of credit, re-submit a balance sheet to the lender that proves you’ve upped your business’s financial capacity.
It’s not uncommon for business owners to have a line of credit and existing debt from other business loans—and most business line of credit lenders are okay with this.
However, if you’ve recently paid off a specific expense that’s been holding your business’s financials back, you might qualify for a bigger line of credit.
Say you’ve got a line of credit and just paid off your short-term loan. You’re now free of a significant debt burden, so you might be able to take on an even larger line of credit.
Before you pay back any outstanding loan, though, watch out for prepayment penalties. Not all lenders will charge a fee when you pay your loan early, but some will—and it can be pricey.
This last tip might come as a surprise, but it’s worth paying attention to:
You might be able to increase your existing line of credit if you have a strong social media presence.
Having a large following on Facebook, Twitter, or LinkedIn can actually be really valuable for a business. If you have more customers and followers supporting you, lenders take that as a sign that you run a strong business and are worth investing in.
If you have a line of credit with Kabbage, for instance, you should reach out to them and prove your social media presence—it might help you increase your line of credit.
If you follow any or all of these 5 tips, you could be able to score a bigger line of credit to finance your business.
But in the end, increasing your line of credit comes down to two things:
It might take some time to qualify for a larger line of credit, but if you’re keeping up with your current payments and growing your company, you’re well on your way to getting more funds for your business.