How to get a credit limit increase

As a business owner, you may have experienced a point where your financial tools are not where they need to be in order to scale in the way you need to. Your revenue is growing, and your clientele is expanding, but your credit limit is stuck. Maybe you try to place a large inventory order, and you realise that you’re extremely close to your credit limit, and you may be trying to figure out how to get a credit limit increase.

For a growing SME, credit limits help you operate with some room to breathe. When your credit limit is too low, your cash flow may start feeling constricted. However, when it is scaled appropriately to the needs of your business, you have the flexibility to scale and invest. 

So, by securing credit limit increases, you’ll be able to optimise your financial profile, and you can then prove to lenders that you are a reliable partner. Here, we’ll explore why credit limit increases matter and how you can position your business to be approved for a limit increase. 

Why you need a credit limit increase

Credit limit increases serve two purposes, one being practical and the other being more mathematical. 

Improving your credit score

Having a credit limit increase will improve your credit score because you’ll have more credit available. This will ensure that your credit utilisation rate is lower. 

  • If you have a £10,000 limit and spend £5,000, your utilisation is 50%. This will portray you as high risk. 
  • If you secure a credit limit increase to £20,000 and spend the same £5,000, your utilisation drops to 25%, portraying you as low risk.

So, by increasing your credit limit, you’ll create a bigger buffer that will help protect your score from fluctuations in spending.

Cash flow agility

One of the most important factors in business is to be able to have access to cash flow when you need it, especially when you need to scale or if there is an emergency. This is when having a higher credit limit will become handy because it allows you to act immediately and will transform your credit card into a revolving emergency fund. This way, you only need to use it when there is an emergency. 

Timing the credit limit increase request

It is important to be able to time your credit limit increase request because lenders are completely risk-averse and don’t like to lend money to businesses that look desperate for money. So, the best time to request a credit limit increase is when your business is performing at its best. For example: 

  • The six-month milestone: Many lenders won’t easily lend to accounts that have been open for less than 6 months. So, if you have recently received an increase, wait another 6 months before requesting a credit limit increase. 
  • After a revenue jump: if your business has just managed to have a really successful quarter, take advantage of this time and use it to request a credit limit increase. High revenue shows lenders that you are able to pay back your debts. 
  • During low usage periods:  If your business credit card is currently maxed out, however, a lender may offer you a credit limit increase when you request it. The key here is to ensure that you pay the balance down first before requesting the increase. 

How to increase your chances of getting a credit limit increase 

There are a few steps you can take to increase the chances of your credit limit increase request being accepted. Here’s what you need to do: 

Update your annual income and revenue

Banks won’t automatically know when your business has hit that next milestone in revenue, so make sure that you always keep this up-to-date on your credit card portals. Before you go to request an increase, make sure that this section is updated and that it reflects your most recent tax returns or audited financial statements. If you are a sole proprietor, you can also include your household income, depending on the rules laid out by your lender. 

Clean up your credit profile

You need to make sure that your business credit report is clean and tidy before a lender starts digging through it to check your level of risk. 

  • Ensure there are no late payments in the last 12 months
  • Minimise other hard inquiries
  • Pay down existing balances on other cards to lower your total credit utilisation rate

Choose your method

  • The online button: Many banks will give you the option of being able to request an increase in credit limit using their online app. This will often trigger an automated algorithm. This is the best route if your business revenue has grown and your payment history is consistent. 
  • The relationship manager: For larger businesses, you’ll probably have a dedicated banker, or feel it is better to use a customer service line. This way, you’ll be able to provide more context. 

Prepare your justification

You need to ensure that you have valid reasons for requesting a credit limit increase, for example: 

  • "Our monthly inventory costs have doubled due to increased sales volume."
  • "We are consolidating our various vendor payments onto one card for better accounting."
  • "We are preparing for a seasonal peak and want to ensure we have a cash flow buffer."

The risks

As with anything financial, there are risks that come with requesting a credit limit increase. This may trigger a hard credit check, which can take away some points from your business credit score. Always ask if there will be a hard inquiry conducted before proceeding. 

Also, with access to more credit, you may face some temptation, resulting in spending on non-essentials. You need to ensure that you are disciplined enough before requesting a credit limit increase, ensuring your budget remains strict, too. 

Checklist for a successful credit limit increase request

Step

Action Item

1. Audit

Check your current score and ensure no late payments are present.

2. Research

Call or search online to see if your bank does a hard or soft pull for increases.

3. Financials

Have your Year-to-Date (YTD) revenue and last year's tax return handy.

4. Timing

Wait for a clearing in your credit. Don't ask right after opening a new loan.

5. Implementation

Submit the request and, if denied, ask for the "Adverse Action Notice" to see exactly why.

 

It is important to know how and when to request a credit limit increase as a business owner, especially as you will be the ultimate financial decision-maker. Having this skill is a proactive way to protect your cash flow and build and maintain a good relationship with lenders. When you have a higher credit limit, your business has room to breathe, grow, and take the next best opportunity. 

Are you looking to purchase business credit checks? Get in touch with Creditserve for more information today.