As your business grows, so do your needs and plans as a business owner. You’ve likely used financing or credit cards to help your business grow, but now your needs have changed. You certainly have the option to apply for new financing or a different credit card, but should you ask for a credit limit increase?
Business owners, on average, already have more credit cards than non-business owners. A recent Nav survey found that the average small business owner has 4.78 personal credit cards and an average limit of $35,291, while other Americans have 2.32 cards on average with a limit of $18,401. Should, then, business owners be asking for a limit increase?
A credit limit increase is exactly what it sounds like – a higher borrowing or spending allowance on a credit card. There are plenty of business credit cards for startups, and you may have already used one, but how do you make that leap to a higher credit limit, and should you ask?
Reasons to Ask
Before going into the process, you should take time to know whether or not you really need the credit limit increase. An increase likely means you’ll be taking on more debt, and you need to be aware of the implications that a higher balance could have on your business credit and on your monthly expenses.
Can’t get enough?
We've got tons of FREE business tools and resources right here.Learn more
If your customer base has grown and your sales numbers are up, you’ll likely be able to provide the documentation and show the cash flow that banks need before increasing your credit limit. This growth also means you have more people to work with, and a higher limit gives you power to reach more people. Growing your inventory, marketing strategy, or other items are great reasons to ask, especially when you have the numbers to back it up.
Even if your accounts receivable are on the rise, there can still be delays in receiving payments. If this is the case, a higher credit limit can help you bridge that gap between where you are currently and where you will be once those accounts are paid current.
How to Prepare
Like most things in your business, you won’t want to walk blindly into asking for a credit increase. One of the best things you can bring to the table is a strong business credit score (you can check yours for free with Nav.) You build a strong credit profile in mostly the same way you build a strong personal credit profile; make your payments on time and keep your debt low, below 30% is a solid standard to set in order to maintain a strong profile.
By showing lenders that you can easily handle the debt you have now, they’ll be more inclined to let you borrow more. In this case, you’ve been in business with the lender for some time, and by making a strong impression with a healthy and well-maintained account, you put yourself in an even better position.
What Happens Next
Different banks will have slightly different ways of facilitating this process. Some banks will have an online application for you to fill out directly, others require that you call in. When you ask for a credit limit increase, you’ll want to check with the lender to see how the increase will affect your interest rate or monthly payment, if at all.
You’ll be asked to provide much of the same information you provide when applying for credit, and the lender will most likely check your business credit score and report. If you’ve made your payments on time with them and maintained a strong credit profile with low debt and a good score, you could potentially be approved for a credit increase.
Pull back the curtain on your business credit
Ready to see your credit data and build stronger business credit? Check your personal and business credit for free.Check my scores