Operating Line of Credit
Working capital on demand
An operating line of credit smooths the gap between paying suppliers and collecting from customers. You draw what you need, pay interest only on the balance and repay as receivables come in.
- Interest only on what you use
- Secured by receivables and inventory
- Annual review, not a fixed term
- Available with most business bank accounts
How the limit is set
Lenders typically lend a percentage of eligible accounts receivable under 90 days and a smaller percentage of inventory. Growing companies can increase the limit as receivables grow.
Operating line or term loan?
Use an operating line for short-term timing gaps. Use a term loan for equipment, vehicles, renovations and acquisitions. Financing long-term assets on an operating line strains cash flow and worries lenders.
FAQ
Common questions
What does an operating line cost?
Pricing is usually prime plus a margin based on the strength of the business, plus a small annual review or standby fee.
Can I get an operating line as a start-up?
It is difficult without receivables history. Start-ups are usually better served by a term loan or a government-backed program first.
Do I need to move my banking?
Many lenders require the operating account to be with them. We factor this into the recommendation.
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