Reducing the Amount You Can Borrow May Help Make Financial Management Easier
A revolving line of credit can be a valuable asset for a small business. But, in some cases, a lender may grant more credit than the borrower is comfortable having. Having access to so much easily-attainable cash may be too tempting for the entrepreneur to resist, especially when they know that their company can’t really afford the debt. In these types of cases, it may make better sense for the entrepreneur to decrease their revolving business credit agreement.
Before you request a decrease in your credit limit, careful consideration should be made regarding how the decrease will affect your business credit. Since credit-to-debt ratio weighs heavily on a business’s credit score, reducing the amount of available credit could have negative consequences on the company’s overall credit score.
Reducing the Credit Limit Online
If your business uses online banking, then depending on your bank, you may be able to make the request online through the bank’s website. Since no credit approval is needed for a reduction in a credit line, the process is generally straightforward. If you do not use online banking or your bank does not offer this option online, then you will have to contact the bank the old fashioned way – either in person or over the phone.
Contact the Bank Directly
If you call or visit your bank directly, then you are going to want to speak with the agent who is responsible for managing the business line of credit accounts. Once you get the correct person, you can submit the request for your credit line to be reduced. The bank agent will more than likely inquire as to why you want to reduce the amount of available credit, but you are not obliged to tell them if you do not want to disclose the reason.
Get the New Terms in Writing
Any time your business undergoes a change in its credit limit or terms, it is important to keep a record of the change. When your revolving business credit limit is reduced by your bank, make sure you receive documentation of the change along with the credit line’s updated terms. In most cases, the bank will approve the reduction without trouble and keep the line of credit’s interest rate and amortization schedule the same, but it remains important to get the entire agreement in writing.