Why did my business line of credit get cut?

Four things could have happened, and the response differs completely. Establish which one before you do anything else.

The first two things to check

What to ask the lender, in writing

1. What specifically caused the reduction?
2. Is it a formula outcome, a covenant issue, a renewal decision, or a portfolio change?
3. If it is curable, what exactly would restore availability, and by when?
4. Is the outstanding balance now over the limit, and what is the required paydown and deadline?
5. Is the facility still committed, or has it moved to a demand or discretionary basis?

Put it in an email. A written question produces a written answer you can act on, and it starts a record.

A borrowing base reduction, worked

Last month the ledger was $1,310,000 with $60,000 excluded, giving $1,250,000 eligible and availability of $1,062,500 — well above the limit, so the $600,000 cap was the binding constraint and nobody thought about the formula.

This month two things happened. $180,000 of invoices aged past 90 days, and one customer went over the concentration cap by $95,000. Eligible receivables fall to $975,000 and availability to $828,750. Still above the limit. Nothing visible changes.

Then a $300,000 customer disputes a delivery and its whole balance is made ineligible under the cross-aging rule. Eligible falls to $675,000, availability to $573,750, and for the first time the formula is below the limit. Your available line is now $573,750, not $600,000, and if you had been drawn at $590,000 you would be over it.

Two lessons sit in that sequence. The formula was moving for months before anything appeared on a statement, because the limit was masking it. And the move that finally bit was a single customer, not a general decline — which is why concentration is the thing to watch rather than the total.

Ask for the borrowing base certificate the lender used, line by line, and reconcile it against your own ageing. Errors happen: an invoice miscoded as aged, a credit note applied twice, a customer counted as one obligor when it is two.

Your notification rights

Under the Equal Credit Opportunity Act and Regulation B, adverse action includes termination of an account or an unfavourable change in its terms — with an exception where the change affects all or substantially all of a class of the creditor's accounts, which is precisely what a portfolio-level reduction may be. Business credit has its own notification rules that vary with the applicant's revenue, and in some cases reasons must be provided only on request made within a set period. See 12 CFR 1002.9 and the definitions at 12 CFR 1002.2. Ask promptly rather than waiting.

What to do in the first week, in order

1. Get the new availability figure and the calculation behind it in writing. Not the number over the phone — the certificate or the schedule.
2. Check the outstanding balance against it. If you are over, find the paydown clause and the deadline before doing anything else.
3. Reconcile the calculation. Against your own ageing, line by line, including which customers were treated as concentrated and which invoices as aged.
4. Ask the four questions above by email, so the answers are written and dated.
5. Model the next sixty days of cash on the new availability, not on the old one. This is the step people skip, and it is the one that determines whether you have a problem next month or next quarter.
6. Start the conversation with a second institution. Before you need it, while your financials still look like the ones you would want to present.

What tends to prevent the next one

Reporting on time, every time. Late statements are the cheapest reason to lose availability and the most common.

Ageing discipline. A ledger managed for collection is a ledger that produces availability, and the two are the same work. Chase at 40 days rather than 80, and resolve disputes rather than letting the invoice sit while it ages out of eligibility.

Concentration awareness. Know which customer is your largest share of the ledger and what the cap is, and treat crossing it as a financing event rather than a sales success.

A standing quarterly conversation with the lender, with numbers attached. Relationships that only produce contact when something is wrong get reviewed differently from relationships that produce a short, accurate update every quarter. That is not sentiment; it is that the credit file of a borrower who reports consistently contains fewer unknowns, and unknowns are what reductions are made out of.

Fixing what is fixable

If it was the borrowing base: collect the aged invoices, resolve disputes, and address concentration. Availability moves with the ledger, so improving the ledger restores it.

If it was reporting: deliver everything outstanding immediately and set calendar reminders for the year. Reporting defaults are the cheapest defaults to cure and the most careless to incur.

If it was a covenant test: ask whether a waiver is available for the period and what the lender would want in exchange. Waivers are routine transactions and are usually easier to obtain before the breach than after.

If it was a renewal or portfolio decision: the useful work is elsewhere. Start a conversation with a second institution now, while you are not under pressure, and build the file — current financials, clean statements, a complete debt schedule — before you need it. The best time to arrange a line is when you do not need one, which is also the only reliable protection against this happening again.