A Secured Line of Credit is often referred to as Asset-Based Lending (ABL). In simple terms, this means the bank will only lend you money if they have something to back it up—like a mortgage on a house. For businesses, the bank typically secures the loan based on accounts receivable (money owed to you by customers) or inventory (the products you have on hand). If you can’t repay the loan, the bank can sell your inventory or collect your receivables to cover their losses. It’s a way for them to minimize risk.

How does it work?

When you apply for a Secured Line of Credit, the bank will want detailed reports about your receivables and inventory. For example, if your business has accounts receivable, banks generally lend anywhere between 70% to 85% of receivables up to 90 days. Anything over 90 days can be considered a risk, and banks usually discount that portion. So, they won’t feel comfortable lending against large balances from accounts that are past due. But if you have a contract in place or a solid history of receiving payments on time—even after 90 days—banks might be more willing to work with you.

For inventory, banks will typically lend 50% to 65% of the inventory value, depending on the type of goods you’re selling. Some industries, such as electronics or food, may have different rules, but in general, the higher the inventory value, the more the bank is willing to lend.

What to prepare?

Having clean books is key when applying for a Secured Line of Credit. If your finances are messy or hard to follow, banks will get cautious, and it could delay the process or even kill the deal. The more organized and transparent you are with your records, the smoother and faster things will go. Be sure to have all your documents ready before submitting. This shows the bank you’re reliable, and it speeds up the process.

Also, strong profits are important, as banks will often calculate EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) to ensure your business is financially healthy and capable of handling the loan. Banks will also always require a UCC1 filing to be secured with the most protection possible for their loan. This means they want first claim to your assets in case things go south.

Which banks offer secured lines of credit?

There are many banks that specialize in Secured Lines of Credit and are willing to lend against your accounts receivable or inventory. Here’s a rundown of some options:

• Bank of America: Known for being a solid choice for inventory-based businesses, Bank of America can lend up to 50% of your inventory if you also finance your warehouse or office with them. They’re willing to take on more risk, but they have started asking for bi-annual financial reviews, which some businesses may find tricky to keep up with.
• KeyBank: KeyBank will lend up to 50% of your inventory but typically caps lending at 10-15% of your sales. They look at your top-line revenue to help determine how much they’re willing to lend, and your numbers need to show you’re a stable, growing business.
• Chase: Chase is a solid option if you have a good relationship with them. They can lend 70% of your accounts receivable and 40% of your inventory, but they tend to include all your business credit cards from any other businesses you own in the exposure. If you’ve built a strong history with Chase, they may lend larger amounts.
• Flushing Bank: Flushing Bank is pretty generous when it comes to accounts receivable, lending up to 85%, which is much higher than the typical limit from most banks. They may also be more flexible with certain industries.
• Kearny Bank: Kearny is a great choice for inventory-based businesses. They’re willing to lend to industries that some banks might shy away from, like food or electronics. They have a reputation for being flexible when others might turn you down.

Pros and cons of secured lines of credit

Pros

Larger credit limits: Since you’re offering collateral, banks are more willing to lend you bigger amounts.

Better interest rates: Because the loan is secured, the risk for the bank is lower, which usually means they’ll offer lower rates.

Easier to get for some businesses: If you’ve got assets like inventory or receivables, you’ve got something tangible to back up the loan, making approval easier.

Cons

Document-heavy process: Getting approved for a Secured Line of Credit can be more time-consuming because you’ll need to provide detailed financial documents. Banks will also often require annual renewals, unlike unsecured lines, which don’t have this requirement.

Risk of losing collateral: If you default on the loan, the bank can take your inventory or receivables to get their money back, which could hurt your business long-term.

Not as fast as unsecured: Secured lines can be harder to access quickly because of all the paperwork and collateral involved.

Why use a broker?

Working with a reliable and experienced broker can save you a lot of time and headache. Instead of running from one bank to another, which can lead to disappointment or lower offers than expected, a broker can guide you to the right bank for your needs. Brokers know which banks will give you the best rates and terms, and they’re also familiar with the different industry requirements each bank has.

A good broker will also know how to work with your collateral—which banks want first position UCC (Uniform Commercial Code) filings and which ones are okay with second position or even further down the line. They help you navigate the system and ensure the process is smooth and efficient.

Do you need help choosing the right business loan or SBA loan for your business? Or have any questions regarding this post?  Feel free to reach out to me

Moshe Mutzen – Capitalize

Email: [email protected]

WhatsApp link: https://wa.link/vwp7i3