Business loans offer much-needed financial backup for businesses. Whether you want to stock up your garment shop, buy expensive tools for your furniture shop, expand your dairy farm, or increase production capacity, you can use a business loan for different purposes and stay competitive in the market.
However, based on your eligibility, you qualify for a certain credit limit on a business loan. This is the maximum amount a bank is willing to extend you. But what happens when your venture outgrows the initial credit limit? Is there a way to secure a higher loan amount, and if so, how? Keep reading to find out.
Table of Contents
Understanding what factors influence your credit limit
The credit limit of any business loan in India is determined by factors such as:
- Credit score: This numerical representation of your creditworthiness is based on your credit history, including past loan repayments, credit card usage, and ongoing debts. A clean and positive credit history can improve your chances of securing a quick micro business loan with a higher limit.
- Your business’s financial performance: Banks assess the financial health of a business to get an idea about its repayment capacity. In doing so, they analyse multiple factors to finalise the credit limit, such as:
- Revenue stability
- Net profit margin
- Accounts receivable
- Sales figure
- Cash flow patterns
- Liquidity
- Current debt and financial obligations: Your Debt-to-Income (DTI) ratio helps banks understand if your business can handle new debt without jeopardising its existing financial stability. A higher DTI means you have more debt compared to what you earn. To compensate for this risk, banks may offer a lower credit limit for your micro business loan requirements.
- Bank’s policies: Banks differ in their risk tolerance, regulatory commitments, and strategic priorities. These factors collectively influence the maximum loan amount they will offer your business.
Useful ways through which you can increase your credit limit
Here are some possible strategies you can adopt to position yourself as an eligible applicant for a higher credit limit:
- Apply for a business loan with the right bank
Choose a bank that offers short term business loans with beneficial terms and a higher amount. You can choose IndusInd Bank Business Loans to obtain funding of up to ₹20 lakh at competitive rates without any collateral or security. Along with the high credit limit, you get other useful benefits like:
- A 100% paperless process
- Easy-to-meet eligibility criteria
- Speedy processing and quick disbursal of funds
- Doorstep banking
- Customisable tenure between 12 and 36 months
Apply for an online business loan with IndusInd Bank today! Get quick and easy access to finance from the comfort of your home or office.
- Active regular GST
For businesses looking to increase their credit limit on a business loan, maintaining an active and regular GST filing status can be a significant factor. Regular GST filings demonstrate legitimacy and financial transparency, making your business more eligible for higher loan amounts. Lenders view active GST holders as more reliable, thereby increasing their willingness to extend higher credit limits.
- Build your credit score
A strong credit score indicates lower risk, which can make it easier to qualify for a higher credit limit on a business loan. Improving your credit score involves:
- Timely bill payments
- Maintaining low debt levels relative to your income
- Limiting new credit applications to avoid frequent inquiries
- Monitoring your credit report to check for errors and maintain a clean credit history
- Bring a co-applicant
A co-applicant with strong financial credentials can add weight to your loan application and improve your eligibility for a higher credit limit. Their strong financial position can compensate for any weaknesses in your application. Most banks favour this approach, as dual income and shared responsibilities mean less risk for them.
To sum up
As you can see, it is possible to increase your credit limit on a business loan in India. However, it depends on factors like your business’s income, profits, performance history, credit score, etc.
By choosing the right bank, improving your credit score, and bringing in a reliable co-applicant, you stand a chance to request a higher credit limit. So, take all these necessary steps and give your business the monetary boost it deserves.