Curious to get any lender's thoughts on an appropriate, reasonable request for a revolving credit facility. Is there an appropriate formulaic way to think about the revolver capacity in the context of Accounts Receivable or overall Net Working Capital or the T12 NWC Average? What are the typical bands or ranges for those formulaic metrics? Just want to understand what is a fair, reasonable ask vs. an aggressive ask?
How much does leverage factor into the capacity consideration? Or is the revolver purely a function of the working capital base and needs?
Thanks!
How to think about Revolver Size and Revolving Credit Capacity?
by an investor
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Secondly, there is the amount of debt cash flow will support. You will have to show historical cash flow or projected cash flow to support the annual interest payments on the line of credit usually on a stressed basis with the line fully drawn for the entire year. However, for some asset based lenders or factoring companies, they really do not worry about cash flow, so this is really only a concern for more conventional lenders.
Lastly, availability is going to be limited based on need. Most lenders will not just provide a company with a $5 million dollar credit if a cash flow analysis shows they really would only need $1 million at any given time. Bank's do not want to make too much credit available if there is not a real need for it. Bank's also have to reserve capital for unfunded line balances, which comes at a cost, so Bank's typically do not want a line that exceeds what a customer could need.
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