Solutions · Credit line denied or cut
The line got cut.
The obligations did not.
When a bank denies, reduces or freezes a line of credit, invoice factoring is a common replacement for the working capital you lost. Availability is generally tied to eligible receivables rather than a fixed bank line, so funding capacity can grow as eligible invoicing grows. Facility terms, limits and notice periods still apply.
Based in Oklahoma City. Funding businesses nationwide.
By the Hexagon Commercial Finance team.
A line of credit is a privilege the bank can withdraw.
Most small business revolving lines are demand facilities reviewed once a year. That review considers your current ratio, your debt to tangible net worth, your receivables ageing, your customer concentration, and the bank's own appetite for your sector at that moment.
A perfect payment record does not protect you. Lines are regularly reduced because a bank has decided to reduce total exposure to construction, or because an examiner flagged a portfolio concentration, or because a covenant was technically breached during a heavy growth quarter.
The result lands the same way regardless of the cause. The working capital you built your operating rhythm around is suddenly unavailable, usually with little notice, and usually at the point in the year when you need it most.
Replace the availability, not just the facility.
The instinct after a reduction is to look for another line of the same size. That often repeats the problem: another fixed ceiling, another annual review, another set of covenants tested against a business that is deliberately growing.
A factoring facility behaves differently. Availability is generally tied to eligible receivables rather than a fixed bank line, so funding capacity can grow as eligible invoicing grows. Facility terms, limits and notice periods still apply, and they are set out in your agreement before you sign.
Factoring facilities also generally do not use the same financial covenants found in traditional bank lending, so the minimum current ratio and debt service coverage tests attached to a bank line are typically not part of the arrangement.
What happens to the bank's lien.
If your bank holds a blanket UCC lien covering accounts receivable, that has to be resolved before factoring can begin. There are three normal paths: the bank subordinates its interest in receivables, the bank releases receivables from its collateral while retaining other assets, or the remaining bank facility is paid off from the initial factoring funding.
This is routine work and banks handle it regularly, particularly when the line is being reduced anyway. We review your UCC filings during setup and tell you which path applies before you commit to anything.
At a glance
- Facility sizing
- Generally tied to eligible receivables rather than a fixed bank line
- Facility terms
- Terms, limits and notice periods are set in your agreement
- Financial covenants
- Generally not the same covenants used in traditional bank lending
- Typical advance
- 80 to 90 percent of eligible invoice value, depending on industry, customer credit and facility terms
- Typical funding speed
- Once approved, eligible invoices can typically be funded within 24 to 48 hours
- Service area
- Nationwide, from our Oklahoma City office
Bank line of credit compared with a factoring facility
| Factoring facility | Bank line of credit | |
|---|---|---|
| Available amount | Generally tied to eligible receivables | Fixed until renegotiated |
| Annual bank credit review | Generally not applicable | Typical |
| Financial covenants | Generally not the same bank-style covenants | Typically required |
| Structure | Purchase of receivables | Borrowing |
| Cost structure | Fee per invoice for days outstanding | Interest plus unused-line and facility fees |
Questions people ask
Working capital that grows instead of expiring.
Book a Cashflow Consultation. Based in Oklahoma City, funding nationwide.