Accounts Receivable Financing
For Companies with Good or Great Credit
An AR line of credit is a loan secured by accounts receivable as collateral. Because an accounts receivable line of credit is a loan, the borrower must have the financial ability to repay.
Why would you need to apply for this line of credit?
Even if your customers pay on time, you may need to extend generous payment terms in order to secure business with them. This is often the case when you work with government agencies and large corporations. If your business’s cash is tied up in accounts receivable, consider applying for an A/R credit line.
If you company has good or great credit, you should be able to qualify for a bank line of credit that is secured by your accounts receivable. This will be a more affordable loan than if you were to use Invoice Factoring. Interest rates for a bank line of credit will be based on prime plus 2-5% whereas factoring will be more expensive.
Pros and Cons of an A/R Line of Credit
After lenders approve your A/R credit line application, you will have access to a line of credit with set spending limit. As you need funds, you initiate a draw request and the lender transfers funds to your business banking account within a couple of days.
The benefits of an A/R line of credit includes:
- Quick access to cash
- Timing and amount of cash is based on your needs
- No collateral needed
- Retain ownership of your business
When your application is approved, the lender will establish advance rate and the interest rate. The disadvantage of this type of financing is that the longer it takes your customers to pay, the more you will pay to the lender. The interest rate varies broadly based on the quality of your customers as well as your business’s profitability and credit.
Let MultiSource Finance help you determine if you qualify for a Bank A/R Line of Credit. Contact us for more information on A/R Line of Credit options and how they can enhance your business and cash flow