What Is an Accounts Receivable Credit Line?

One of the main reasons businesses go under is because of cash flow problems. The cash flow issue can be solved by improving operations and using the right financing solution. There are grants, loans, and other products that can provide valuable working capital. One option is to take out an Accounts Receivable Line of Credit. Here’s what you need to know about this funding option.

See if you pre-qualify!

Accounts Receivable Line of Credit Explained

An Accounts Receivable (AR) Line of Credit can provide fast and affordable funding to shore up a small business’s cash flow or provide access to short-term working capital. An AR Line of Credit is secured by accounts receivable as collateral. It’s a type of loan and the borrower must have the financial ability to repay.

Your accounts receivable, basically invoices that will be paid in 30 to 60 days, are considered by lenders as assets that can be used to secure financing. AR is seen as a strong form of collateral because of its liquidity - it can be turned into cash quickly. Another benefit of an AR Line of Credit? Instead of focusing on trying to collect bills, business owners can concentrate on other core aspects of its business.

Requirements to Qualify for an AR Line of Credit

Because an accounts receivable line of credit is a loan, the borrower must have the financial ability to repay. Lenders who offer this form of business financing typically require:

  • Strong Business Financials
  • Positive Cash Flow
  • Established Business Credit

To use your receivables as collateral, they must be high quality. In other words, your company must have good invoicing and collections practices. Additionally, your customers must have good commercial credit.

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Criteria to Consider

Before you apply, consider the following:

  • Funding amount: How much you can borrow from the AR financing company? Is it enough or will you come up short to reach your business goals? Accounts receivables financing companies typically advance companies 70 to 90 percent of the value of their outstanding invoices.
  • Advance rate: What is the percentage rate that will be advanced against your invoices?
  • Discount rate: What discount rate, similar to an interest rate, will be charged to lend against your invoices?
  • Fees: Are there fees you’ll be responsible for?
  • Speed to funding: How quickly will you have access to the funds that you need?
  • Customer interaction: Is there strong customer service available to support you throughout the application process?
  • Qualifications: How will you be evaluated and are you likely to be approved?

How to Get an AR Credit Line?

SmartBiz Loans works with a marketplace of SBA preferred banks. We match you with the bank most likely to offer an AR Credit Line. There’s just one online application to complete whether you’re seeking an SBA loan, a Bank Term loan or an AR Credit Line. Use our secure software to pre-qualify in less than 5 minutes without impacting your credit score*.

Visit the SmartBiz website here to get started. Our knowledgeable team is available to discuss your funding options and guide you through the application process.

*SmartBiz Loans conducts a soft credit pull that will not affect your credit score. However, in processing your loan application, the lenders with whom we work will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and happens after your application is in the funding process and matched with a lender who is likely to fund your loan.

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