One of the more important facets of business is money. As the business continues to grow, you will need more money that could be of great support to you and your employers. If you do not have the necessary money to do this, then you need to go to a bank and ask them for a helping hand. There is nothing wrong in getting credit – you just need to know how to pay back on time. Before doing this, however, you need to carefully assess how much you will need for your business. From there, take the necessary steps to get the loan that you need.
In this article, we will discuss your business line of credit limit – how much do you exactly need to be able to operate your business smoothly? While some small businesses may only need a small amount, larger businesses may need a bigger amount of cash as they have more departments and resources. In addition to that, you must also take into consideration that smaller companies have fewer people working for them; this results to lesser earnings as compared to a larger company. Since larger companies have more employees, they will also be earning more. With that said, it comes to no surprise that larger companies have a better credit limit as they are more capable of paying it off in a shorter period of time.
Now, to determine just how much credit your business needs, you need to start off by getting your annual revenues and dividing it by 365 (number of days in a year). With that, you get your daily cash need.
After this, add your accounts receivables days as well as your inventory days. Then, subtract your accounts payable days from the two above. You will now get the number of usage days. Your answer should then be multiplied to your daily cash need; there you have it – that is the estimated line of credit needed for your business on an annual basis.
After having done this, you will need to take it to the bank and further discuss with them what can be done to provided with that kind of credit – tell them that it is needed for business operations. Surely they will find a way in which they can provide you a good amount of credit – considering that you are a good bank customer.
While there is such a thing as too much credit, you can also find yourself earning a good amount of money if you know how to monitor your accounts very well. Too much credit can only exist if you allow your receivables to go out too far without proper compensation from the other party. For banks to give you a good line of credit, they must know that your company is “liquid” enough – this can be determined through a quick ratio or current ratio. The higher the current ratio, the more capable the company is to pay off their debts. And that is exactly what banks want to see – the ability for you to pay up when needed.
Again, your business line of credit limit should be accounted for properly. Read our guides at businesslineof.credit. Here’s also an interesting article on business credit: https://online.husson.edu/how-to-build-business-credit/
What business line of credit limit should you go for? Let us help you determine how much do you really need to apply for at businesslineof.credit.