A conventional bank line of credit is sized on your historical financials and reviewed on the bank's own schedule. A/R financing is tied to the receivables you carry now, so it follows your billings as they change. That difference is why a fast-growing company can outgrow a bank line while its receivables are still climbing.
How a bank decides
A conventional bank line is underwritten primarily on your company's historical financials: typically several years of statements and profitability. Banks commonly measure coverage ratios such as debt service coverage and fixed charge coverage, which describe how comfortably past earnings cover your obligations.
A bank increase follows the bank's credit cycle and your most recent financials. The limit is approved once and reviewed periodically, so it tends to move in steps rather than with your day-to-day business.
How A/R financing decides
A/R financing looks at what your customers owe you today. The receivables you carry are the collateral, and availability follows a current snapshot of the eligible ones, so it rises as your invoiced sales rise and falls when they fall.
That is why it can be available to companies whose recent growth outpaces their financial history. The question is less how the business performed in the past and more who owes it money now and how reliably they pay.
The two compared
| Bank line of credit | A/R financing | |
|---|---|---|
| What it rests on | Historical financials and coverage ratios. | The receivables you carry now. |
| How the limit works | Set at approval and reviewed on the bank's cycle. | Availability follows your eligible receivables as they rise and fall, within an approved limit. |
| Good fit for | Established companies with steady, well-documented results. | Growing B2B companies whose receivables outrun their history. |
| Speed of changes | An increase runs through a credit review. | Availability tracks your billings. |
When a bank line falls short
Growth is the usual reason. A company that wins larger customers can find that its historical financials no longer support the capital it needs now. The business is not getting worse; the historical record simply describes a smaller company than the one you have become.
Can you keep a bank line and add A/R financing?
Only where your existing lender permits it. A bank that has a lien on your receivables will need to be part of the conversation, and its consent may be required. Tell any new lender about your existing facilities at the start so that the structure works for everyone involved.
If you want to see how receivables-based facilities work, start with the A/R line of credit and invoice factoring pages.