How to size a business line of credit

The useful question is not how much credit you can get, but how much cash is tied up while you wait to get paid. If you pay suppliers in 30 days and collect in 60, you are financing 30 days of cost on every cycle.

Estimate that gap in dollars: monthly cost of goods and operating expenses, multiplied by the fraction of a month you are carrying. That figure is the baseline working-capital requirement a line needs to cover.

If revenue is seasonal, add the cost of building inventory and staffing ahead of your peak. A line sized only for the average month will run short exactly when volume is highest.

Look at your two slowest months and your two busiest. The difference in cash required between them is the second component of your line size.

A line that is fully drawn at all times is not doing its job as a buffer. Operators commonly keep a portion of the limit undrawn so an unplanned repair or an unexpected opportunity does not require a new application.

That is a sizing preference, not a lending rule — but it is the practical reason a slightly larger limit can be more useful than a perfectly matched one.

Whatever you calculate, the approved limit is set during underwriting based on your business's financial picture. Request the range that matches your need; if the approved limit comes in lower, the line can still be useful, and limits can be revisited as the business grows.