Best Ways to Handle Maxed-Out Business Credit Cards

The pandemic brought a deep and ugly recession, so it’s little surprise that small business owners everywhere are holding their breath. Keeping costs down is a constant struggle. As business credit cards max out, it’s understandable that business owners feel cornered. But the good news is that talking to creditors can unlock cash. You can ask for a higher credit limit, longer payment terms, or a new line of credit.

Negotiating new payment terms can seem intimidating when a small business has taken a financial beating. Losing income for a few months or closing for some time can make you feel defensive and less confident going into the conversation. But preparation can really set you up for success. The negotiating process gets easier if you do some research and assemble a few strategies ahead of time. Here’s how to boost your odds.

Raising Your Credit Limit

Lenders have generally been reviewing several years of repayment history when they consider raising your credit limit. By now, 2019 figures are nearly irrelevant, says Bryan Toft, chief sales officer at Sunrise Banks.

As a result, lenders are paying much closer attention to the finances of this year, Toft says. Expect a request for your year-to-date financial statements for 2020. Come to the table ready to prove your performance.

Your top priority is building a story that justifies the credit increase. Toft recommends three approaches.

Maybe you had weak cash flow numbers in the first or second quarter. Sketch out your profits and losses through the end of 2020 and then in all of 2021, showing a steadily improving cash flow, Toft advises.

Show the exact financial effects of the pandemic. Use bank statements for the months before and after lockdown, such as a healthy January and February, then the decline.

If you ask for higher borrowing power or longer terms, it’s also important to tell the lender how the business has adapted to recover revenues, Toft advises. This shows the lender you’re thinking about the business strategically.

Secure Credit Lines Before They Need the Money

Experts have long warned that you should secure credit lines before you need the money. If you didn’t, applying now for funds is going to be an uphill struggle. Risks are higher for lenders, who need to be more cautious in this economy. And naturally, resources are not unlimited, either.

If you’re borrowing for the first time or approaching a new lender, Toft’s advice is worth following.

Work on your personal credit before knocking on lenders’ doors. Many small business credit cards and lines of credit use the owner’s personal score for limits and rates. If yours is weak, try a credit-builder tool.

Avoid vagueness. Specify exactly what the credit line or new credit limit will be used for, such as filling cash flow gaps. Lenders want precise uses. Back this up with estimates that justify the amount.

Modified Repayment Terms

Many businesses can’t keep up with their payment schedules right now. In fact, Census Bureau data showed that more than a fifth of small business owners missed scheduled payments such as rent, utilities, and payroll in the pandemic’s first two months. Falling revenue means not much room for expenses.

Plenty of lenders see how hardship is widespread and will make some compromises. If you can, call before you miss a payment. It isn’t ideal to be late already, but it’s not the time to stay silent. Pick up the phone and say you’d like modified repayment terms.

Negotiate based on revenue now and what you think your future is likely to be. You may be able to make interest-only payments temporarily. Estimate when normal payments will resume.

Don’t go it alone. Toft advises, take the time to seek out local small business resources. Outside help also comes from sources such as SCORE, Small Business Development Centers, chambers of commerce and nonprofits. Cities and states also have economic development offices. These can help with planning and refinancing debt.