For many Maryland small businesses, securing a business line of credit is a considerable milestone. As a business matures, however, it may become clear that the initial business credit line isn’t able to keep up with the growing need for financing. Here are a few ways Maryland small business’s can increase their line of credit.
The easiest way to get a credit limit increase on a business line of credit is to offer up additional collateral.
Additional collateral for the purpose of business financing may include: real estate, equipment, inventory or assignment of account receivables. The amount of collateral you will be required to offer can vary greatly based on the size of the line of credit, the health of your business, and your borrowing history with the bank.
Often, especially if you haven’t been in business for very long, or your borrowing history with the bank is short, you may need to put up 120% of the line of credit in collateral. This covers the maximum amount for the loan, as well as any fees and interest that are incurred in the case of non-payment.
If your small business is experiencing growth and consistently exceeds projections, and you have the financial statements to go along with it, most banks will consider allowing you to increase your business line of credit limit.
As with consumer loans, proving an ability to repay larger loans is often enough to assure banks that increasing your credit limit is a safe investment.
Similarly to the previous point, when requesting a credit line increase, displaying a strong history of responsible borrowing will help increase your chances.
Building a responsible borrowing history often takes time, paying off any balance on your business line of credit in a prompt and regular manner helps prove creditworthiness.
In extreme scenarios a business owner can come on as a guarantor—essentially nominating himself as next in line to repay the loan in the event that the business is unable to. This involves a high degree of risk, as it eliminates many of the protections offered by structuring your company as a corporation.
A personal guarantee can help increase the limit on a business line of credit, but only if the business owner has impeccable credit and a solid financial footing. In the event the business defaults on the line of credit, the personal guarantor will be responsible for all remaining debt.
Often, the critical ingredient for getting a higher limit approved is timing. Since borrowing against a credit line is flexible and can be done on an as-needed basis, businesses should carefully consider when to apply for an increase.
The ideal time is when a business does not actively need to borrow money. Having recent positive news, such as opening of a new location or a launch of a successful new service or product line, can go a long way towards getting the limit increased on a business line of credit. The worst possible time to apply for an increase is when your business is actually strapped for cash or desperately needs a loan.