Working Capital  | Liquidity Solutions

Asset Based Revolving Credit Facilities, also called “revolvers”, accelerate cash flow by monetizing a balance sheet asset. Revolvers are typically secured by accounts receivables and/or inventory.

A revolving credit facility is actually a very cost-efficient alternative for a business that needs to liquefy its working capital without having to slow growth or add to its equity capital. Cash is available as needed, and any cash not needed on a daily basis is used to pay down the loan balance and minimize interest expense. Typically, the minimum size of a Revolver is $1 to $2 million. Although they can be as low as $250k on a case by case basis.

What is a Revolver?
A revolver is a loan which can be drawn down and repaid and is usually secured by the borrower’s receivables and/or inventory. This kind of asset-based loan is designed to optimize the availability of working capital from the borrower’s current asset base.

How Does A Revolver Work?
The borrower grants a security interest in its receivables and/or inventory to the lender as collateral to secure the loan. This grant of security interest creates the borrowing base for the loan. As receivables are paid, the cash is turned over to the lender to pay down the loan balance. When the borrower needs additional working capital, the borrower requests another advance. Because the borrower’s customers are generally not notified of the assignment of the accounts to the lender, the borrower continues to service its receivables. The borrowing arrangement is usually transparent to the borrower’s customers.

Who uses revolvers?
Companies generally take the secured revolver alternative when they cannot obtain an unsecured bank loan which, when added to their normal cash flow, would satisfy their working capital needs. Generally, the company must have a history of profitability and positive cash flow. Under certain circumstances, companies that suffered losses during the current economic downturn but have returned to profitability may also qualify.

Many different kinds of companies use revolvers. They are particularly popular among retailers, wholesalers, distributors, and manufacturers.

What receivables are eligible as security for a revolving credit facility?
Most receivables from completed transactions are eligible. Some receivables which fall into specific categories, however, are not. Typical examples of ineligible receivables would include receivables 90 or more days past due and any intra-company receivables. Some lenders also have the capability to lend against certain government receivables and foreign source receivables.

Contact us today and one of our financial specialists will give you a free analysis of what we can provide for your company.