Commercial Line of Credit for Wholesale & Distribution Companies
Wholesale and distribution businesses buy large quantities of product on supplier credit terms and resell to retailers or businesses, often on net-30 to net-60 terms. The gap between paying suppliers and collecting from customers creates a structural working capital need that revolving lines of credit directly address.
Common Uses of a LOC in Wholesale & Distribution
- Purchasing bulk inventory from suppliers when terms require faster payment than customer collections allow
- Taking advantage of supplier early-pay discounts that require immediate payment
- Managing cash flow during rapid growth when new customer accounts delay first payment
- Funding warehouse costs and logistics while inventory turns over
- Bridging cash flow when large customers extend payment terms beyond standard net-30
Cash Flow Patterns
Wholesale distributors operate on thin margins and high volume. The business model requires constantly reinvesting in inventory. A typical LOC draw-and-repay cycle mirrors the inventory turn cycle: buy inventory, sell to customers on net-30, collect receivables, repay the line, and repeat. Faster inventory turns allow a smaller line to support more volume. Businesses with slow turns (seasonal products, specialty goods) need larger lines relative to revenue.
What Lenders Evaluate
Wholesale lenders focus heavily on inventory quality, A/R aging, customer concentration, and gross margin. Asset-based lenders advance against eligible A/R (typically 75–85% of current invoices) and eligible inventory (typically 40–60% of cost). Conventional lenders look at revenue trend and personal credit. Major retail customers (big-box stores, grocery chains) are viewed favorably because of their creditworthiness.
Frequently Asked Questions
- What is an asset-based line and is it better for distributors than a conventional LOC?
- An asset-based line (ABL) uses A/R and inventory as collateral, and the credit limit adjusts as those assets change. ABLs typically allow higher leverage (more borrowing relative to revenue) than conventional LOCs. They require regular borrowing base reporting but are often the better fit for high-volume distributors.
- How do seasonal inventory patterns affect LOC qualification?
- Lenders typically look at 12 months of bank statements to assess seasonal patterns. A distributor with strong peak-season revenue but near-zero off-season revenue may still qualify, but the line size may be calibrated to annual average revenue rather than peak-month revenue.
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