A ledgered line of credit (LLOC) is a revolving financing facility secured by accounts receivable (A/R). It combines the receivables-based structure of invoice factoring with the revolving format of an asset-based loan (ABL).
LLOCs are intended for larger small businesses and middle-market companies. These companies have the financial controls and reporting capabilities needed to support this type of facility.
Ledgered lines of credit have simpler qualification requirements, fewer covenants, and a simpler operating structure than an ABL. This makes them an attractive option for companies that only want to finance their A/R without the compliance requirements of an asset-based loan. The following sections explain the main qualification requirements.
Note: Read this article to learn how ledgered lines work.
1. Monthly sales of $1M+
Ledgered lines of credit are designed for companies that invoice at least $1 million per month. Seasonal companies can also qualify as long as their annual revenues are at least $12 million.
Note: Companies with lower annual revenues should consider invoice factoring instead.
2. Reasonable financial condition
These lines work best for companies that are in good financial condition and are growing. They can also be a good choice for companies assigned to a bank’s Special Assets group. Many of these companies are financially sound but have been transferred to Special Assets because of covenant issues (e.g. seasonal revenue fluctuations).
Lastly, ledgered lines may also be used by companies undergoing a turnaround. In these cases, the company must have a viable turnaround plan and a seasoned management team to execute it.
3. Quality accounts receivable
Ledgered lines of credit are mainly secured by your company’s accounts receivable. Your company must have enough eligible receivables to support the requested credit facility. As part of their due diligence, finance companies review customer concentration, receivables aging, payment history, and dilution. Additionally, your company’s invoices should be:
4. Reliable financial controls
Your company must have reliable financial controls and consistent internal processes. These include:
5. Accurate financial statements
Your company should be able to produce accurate and timely financial statements, including up-to-date income statements and balance sheets. Finance companies rely on this information to evaluate your company’s financial condition, monitor performance, and confirm whether the company can support the requested credit facility.
6. Strong operational track record
Your company should have an established operating history and a reliable track record. Finance companies generally look for stable operations, experienced management, and the ability to manage growth without creating financial or operational problems.
7. No major tax or legal issues
Your company must be free of major tax or legal issues. Companies with significant legal or tax problems should consider other alternatives, such as factoring.
Looking for a ledgered line of credit?
We are a leading provider of ledgered lines of credit, asset-based financing, and invoice factoring. For more information and an instant quote, fill out this form or call us toll-free at (877) 300 3258 to speak with a representative.
Marco Terry is the Managing Director of Commercial Capital LLC and has over two decades of experience in asset-based finance. He has worked with small and mid-sized companies across the United States, Canada, and Australia. Marco holds a Master of Science in Finance.