You’ve hit your credit limit again. Your business line of credit, once a reliable source of working capital, isn’t keeping up with your company’s current demands. Like a plant outgrowing a small pot, your business’s growth opportunities and daily finances are being stifled by a credit line that’s just too small.
But you don’t have to let the funding constraint choke your business. Let’s walk through what you can do when your business line of credit is too small and how to ensure you always have enough room to grow.
Get to the Root of the Problem
Most business owners find that they have either relied too heavily on short-term funding to meet long-term needs or have grown faster than their financing. Do either of these scenarios describe your business? Getting to the root of the credit line problem will determine what steps you can take.
For example, a $50,000 business line of credit when your company had five employees and $300,000 in annual revenue might have been sufficient. But if you’ve grown to 15 employees and $1.2 million in revenue, you’ve likely outgrown your original credit limit.
Most lenders will not adjust your limits unless you initiate a request. If you are not proactively adjusting your financing, it’s easy to outgrow your original product. You may just need a bigger product to match your new size.
On the other hand, if your revenue and expenses haven’t increased, but you’ve still run out of funds, you’ve probably invested in a long-term need. Let’s say you withdrew all the funds from your $30,000 line of credit to purchase new equipment. You can afford to replenish the account over the next 12 to 24 months, but that leaves you without any working capital right now.
In this case, the problem concerns your use of funds and financing plan more than your credit limit. Your business line of credit may be plenty for day-to-day needs, but not enough to cover large purchases as well. You may need a term loan or business equipment financing in addition to your line of credit to cover all your funding needs.
Increase Your Credit Limit
If your time in business is longer and your revenue trends, cash flow, and credit score have improved since you first received your line of credit, you may be eligible for a larger limit. Here are a few ways to increase the funds in your credit line.
Talk to Your Lender
Start with your current credit line provider. Share updated financial statements, tax returns, and a clear explanation of how your capital needs have evolved. Your lender may view your request as a natural progression in the growth of your business and be able to increase your credit limit.
Calculate what you actually need to operate comfortably with some breathing room. For instance, if your current line is $75,000 but you routinely hit $70,000 and scramble during large orders or seasonal lulls, you might request an increase to $125,000. A reasonable request protects you from taking on too much credit and increases your likelihood of approval.
Graduate to a Larger Financing Product
Your lender might be unable to increase the limit on your current product if the credit line is for young businesses securing their first financing. If you’ve outgrown the type of credit product you started with, you can explore alternative products.
If you own valuable assets, consider a secured business credit line, or an asset-based line of credit (ABL). By using your equipment, real estate, inventory, or accounts receivable as collateral for the borrowed funds, you can significantly increase your access to funds.
Businesses with strong credit profiles can also access unsecured credit lines with limits in the millions of dollars through online lenders for medium-sized corporations and the Small Business Administration (SBA).
But be aware of the potential downsides. These financing options come with higher limits and better scalability but can require more documentation and extensive underwriting. Your assets might also be at risk if you default on the agreement.
As your business matures, your financing evolves too. As long as you consider all the aspects of the new financing and choose the ones that fit your business, you’ll find the right funding to grow.
Switch Lenders
Your current bank may not be willing or able to increase your borrowing limit or offer credit products that meet your needs. Some lenders cap their financing based on internal policies, not your merit.
If your current financier only offers restrictions, switch to a more accommodating funding partner. Specialty lenders, fintechs, credit line providers, and alternative lenders tend to offer flexible products and fast approvals.
Look for a financing company familiar with growing businesses in your industry. Compare credit limits, fees, interest rates, repayment terms, and customer support between lenders before signing an agreement. Your business deserves a supportive financial partner who will grow with you.
Change Your Financing Plan
When your current financing starts to limit growth, it’s time to rethink your strategy. When you shift resources from underperforming projects to high-potential initiatives, you reallocate capital where it can have the most impact and create space to expand and thrive.
Tighten Your Credit Usage
Business owners with a credit line that is too small should evaluate how efficiently they use the funds, even if increasing the limit is the solution. Tightening your credit usage can save you money in the long run.
Check how long your balances remain outstanding. Consider shortening your draw periods and paying off your balance more aggressively, especially if you have tight profit margins. This repayment strategy makes your usage more sustainable and improves your credit profile.
Look for withdrawals used to meet fixed costs or invest in long-term projects. If you’re using your line to finance equipment that takes years to pay off, you’re tying up revolving credit in non-revolving assets. You’d be better off using dedicated equipment financing for these purchases.
Explore Alternative Credit Products
You might find that your current line of credit isn’t working because you need a product customized to your expenses or sales model. Choosing a credit product with a slightly different purpose could better address your funding gaps and fuel your growth.
For example, businesses with a high volume of card transactions use merchant cash advances for flexible working capital. This product lets you borrow against future sales and offers adjustable repayment options. If fixed payments strangle your cash flow, this option could give you more financial flexibility.
Or you can also explore credit products designed to meet your specific needs. An equipment line of credit allows you to access funds to purchase multiple tools and machines over time. A working capital credit line offers revolving funds for short-term operating needs like seasonal gaps or marketing campaigns.
Whether you replace your current credit line or use an alternative on top of it, fitting the product to your specific needs can help your business find the space and funds it needs to grow.
Add a Secondary Source of Capital
Sometimes, supplementing your line of credit with a different funding product gives you the buffer you need without over-leveraging either source. The additional financing you choose depends on your business’s needs.
Consider a business cash advance credit card or invoice financing if you frequently draw on your credit line to cover expenses or make purchases while waiting on customer payments. Or, you could supplement your credit line with equipment financing if you need funds for new tools or machines. You could even use a short-term business loan for specific projects and reserve your credit line for later.
The goal is to pair complementary sources of capital so you can use your credit line more strategically and make your business more resilient.
Tending Your Business Line of Credit
If your warehouse, software, or team outgrew its capacity, you wouldn’t wait for operations to stall. You’d expand the space, upgrade the system, or add staff. Your line of credit deserves the same proactive attention.
You may request an increase, diversify your credit tools, restructure your usage, switch lenders, or add another financing product. As long as you proactively tend to your line of credit so that it keeps growing with your company, your business will continue to thrive.
