How is a company credit limit determined?

A limit is not the output of a single formula; it is an estimate of the burden a company can carry. This is why two companies with the same turnover can receive very different limits — what matters is not turnover, but how sound the structure supporting that turnover is.

Factors that determine the limit

Repayment capacity: can you take on a new obligation on top of your existing commitments?
Debt burden: the weight of the debt you currently carry relative to your capacity.
Profitability: the sustainability of earnings that will service the new burden.
Resilience: the stability of the financial picture from year to year.
How much of your existing limits you are using.

Why does a limit come out lower than expected?

A common reason is that the company reads its own capacity solely from turnover. If the debt burden has grown alongside turnover, or collections have slowed, carrying capacity has not expanded as much as turnover. While the company feels it is growing, the assessment sees contraction.

Another reason is that a large portion of existing limits is already drawn down. This directly narrows the headroom left for a new obligation.

How to prepare for a limit meeting

The essence of preparation is knowing your own financial position before going into the meeting. When you see your score and the factor pulling it down in advance, you can set realistic expectations and have the chance to address the weakness before the meeting.