Glossary · product

Credit Limit

Also called line limit, facility limit, commitment amount, maximum availability.

The maximum you may have outstanding at once on a revolving facility — a ceiling on availability rather than a promise that the money will be there when you draw.

Drafted with AI assistance. Not yet independently checked. Nobody has verified the claims on this page against a source, so treat the figures and legal points as a starting point rather than as settled, and confirm anything you are about to act on. How we check things.

What it means

The number in the approval letter is the top of a range, not the amount available. What you can actually draw is the lowest of several tests applied at the moment of the draw.

Committed against uncommitted

Committed.The lender is contractually obliged to fund draws up to the limit while you are in compliance, usually for a fee on the undrawn portion.
Uncommitted or discretionary.Availability is at the lender's discretion each time. The "limit" is an expression of intent, and many fintech and card facilities work this way.

Formula limits

On an asset-based line, availability is the lesser of the stated limit and the advance formula applied to eligible collateral. Sublimits then cut it further: a cap on inventory as a share of the total, a cap on any single customer's receivables, a cap on foreign or government accounts.

What reduces it

Covenant breach. A material adverse change clause. A shrinking collateral base. An annual review. On cards and discretionary lines, a unilateral reduction permitted by the agreement, sometimes with no notice beyond the statement.

Where this one catches people

A limit and availability are different things, and they diverge most in the situation you took the facility for. A borrowing-base line shrinks exactly when your receivables run off, which is when sales slow, which is when you need it. A discretionary line can be reduced when your file deteriorates, which is the same moment.

Ask four questions before you accept a facility and treat it as cushion. Is the limit committed or discretionary? What is the advance formula and what makes a receivable or an item of inventory ineligible? What sublimits apply? And what exactly permits the lender to reduce or terminate availability — read the material adverse change wording, not the summary.

Then plan on availability, not on the headline. A cash forecast built on a limit you cannot draw is not a forecast.

Worked through

Illustrative only. A $500,000 line, advancing 80 percent against eligible receivables.

Gross accounts receivable $700,000.

Less receivables over 90 days: $90,000. Less the portion of one customer's balance above the 25 percent concentration cap: $60,000.

Eligible receivables = 700,000 − 90,000 − 60,000 = $550,000.

Availability = 80 percent × 550,000 = $440,000, which is below the $500,000 limit, so $440,000 is the ceiling that applies.

Outstanding balance $410,000. Undrawn availability = $30,000.

The business believes it has a $500,000 line with $90,000 of headroom. It has $30,000. And if the largest customer pays down while the rest of the book ages, both the eligible base and the availability fall further in the same week.

Figures in the example are illustrative. They show the arithmetic, not a quote — what any one lender would charge is on that lender's page, where it is published at all.

Where you will meet this term

Working Capital Business Line of Credit Asset-Based Lending Business Credit Cards

Read next

Advance rateThe share of an asset's eligible value a funder will put up front, used in factoring, asset-based lending and… Clean-Up ProvisionA covenant on a revolving line requiring the balance to fall to zero, or to a stated level, for a set number … ConcentrationHow much of a business's revenue or receivables depends on a single customer, and the cap funders place on ho… DrawA request to take money from an approved facility, turning available credit into an outstanding balance. Eligible receivableAn invoice that counts toward the borrowing base because it passes the lender's tests on age, customer, conce… Line of credit (LOC)A facility allowing repeated borrowing up to a limit, where repaid principal becomes available again and inte… Material adverse change (MAC)A clause letting a lender suspend funding, demand more collateral or call the facility when the borrower's co… Revolving creditA facility you can draw, repay and redraw up to a limit, where cost applies to the outstanding balance and re… Unused Line FeeA periodic charge on the part of a committed line you have not drawn, paid because the lender is holding capi… Utilization rateThe share of an available credit limit currently drawn, watched by lenders on a line of credit as an indicato…

Credit Limit — common questions

What does credit limit mean?

The maximum you may have outstanding at once on a revolving facility — a ceiling on availability rather than a promise that the money will be there when you draw.

Where does credit limit catch people out?

A limit and availability are different things, and they diverge most in the situation you took the facility for. A borrowing-base line shrinks exactly when your receivables run off, which is when sales slow, which is when you need it. A discretionary line can be reduced when your file deteriorates, which is the same moment.

Is credit limit the same as an interest rate?

Credit Limit is defined above; if you are comparing it against a rate, check whether the two measures share a time dimension before you put them side by side.

Which products does credit limit apply to?

Working Capital, Business Line of Credit, Asset-Based Lending, Business Credit Cards.

Is there a worked example of credit limit?

Yes, on this page, and it is labelled illustrative. It shows the arithmetic, not a quote from any lender.

What else should I read alongside credit limit?

Advance rate, Clean-Up Provision, Concentration, Draw, Eligible receivable.

Has this definition been checked?

Not yet. This entry is drafted and live, and the notice at the top says so. Confirm anything you are about to act on.

Is this legal advice?

No. It is a definition. What a clause does in your contract, in your state, is a question for a lawyer licensed where you are.

Can I suggest a term?

Yes — [email protected]. The glossary grows from what people are actually shown in contracts.