Revolving lines of credit are secured by the borrower's receivables and/or inventory. Typically, this type of financing is used to increase cash flow and
working capital. Because the borrower's customers are generally not notified
of the assignment of their accounts to the lender, the borrower continues to
service its receivables. The borrowing arrangement is usually transparent to
the borrower's customers. Advance rates for lines of credit secured by
accounts receivable depend on credit worthiness, and the amount of dilution
(returns, uncollectible, etc.) that the borrowers company experiences, but
typically range from 60% to 85% of the outstanding accounts receivable.
Advance rates for lines of credit secured by inventory depend on the future
orderly liquidation value of your inventory and the level of inventory
relative to the amount of your accounts receivable outstanding, but
typically range from 30% to 65% of the cost of inventory. Financing rates
are based on a borrower's financial profile and market conditions.