Business Line of Credit for Wholesale Distributors
A business line of credit gives a wholesale distributor a revolving limit to pay suppliers while customers take 30 to 60 days to pay, then repay as invoices clear. Because the gap repeats with every order cycle, a line with interest only on the balance usually fits distribution far better than a fixed-cost advance taken again each time.
How does a distributor use a line through the order cycle?
Paying suppliers ahead of customer payments
A distributor buys inventory, ships it and waits weeks for payment. A draw pays the supplier when the invoice is due, and the customer's payment repays the draw. The line cycles with each order.
Seasonal stocking
Distributors that serve seasonal customers, like landscape supply, holiday goods or school products, buy heavily before their customers' busy season. The line carries that inventory until orders turn into collections.
Covering a slow payer
When a large customer runs late, a draw keeps payroll and freight on schedule without renegotiating terms with anyone.
Covering a slow month with the line
Out of a $180,000 limit, $64,000 goes out for a slow month at 1.75% monthly interest. Deposits average $400,000, and the balance drops by thirds.
| Step | Balance on the line | Cost that month at 1.75% |
|---|---|---|
| Draw in the slow month | $64,000 | $1,120 |
| After one repayment | $42,670 | $746.67 |
| After two repayments | $21,330 | $373.33 |
| Paid back | $0 | $0 |
Total cost lands around $2,240; unused limit costs nothing unless there's a fee. Staffing at wholesale trade (NAICS 42) varies only 0.8 points by month in BLS data; your own statements set the slow month.
What do funders look at for a distributor's line?
Receivables aging, customer payment history, bank statements, business tax returns, inventory reports and credit. Distributors with many creditworthy customers and a clean aging report tend to qualify for larger limits. Heavy concentration or old, unpaid invoices reduce the limit.
Unsecured lines and borrowing-base lines
Unsecured lines are simpler but smaller. Borrowing-base lines tie the limit to eligible receivables and inventory, so they grow with the business, but they come with regular reporting and a lien on those assets.
How can a distributor keep its line in good shape?
Repay each draw as the related invoices clear, so the balance rises and falls with the order cycle. A line that stays maxed out for months looks like permanent debt at renewal, and funders reduce limits when they see it. Keep aging reports current, since funders review them.
Watch the supplier side too
Negotiating longer supplier terms reduces how much the line needs to carry. Every extra week of supplier credit is a week of interest saved.
Quick answers
How much line of credit can a wholesale distributor get?
Limits often follow monthly revenue and eligible receivables. An unsecured line tends to equal a few weeks of sales, while a borrowing-base line can reach a large share of receivables under 90 days. Credit, customer quality and concentration all move the number up or down.
Is a line of credit better than factoring for a distributor?
Usually, when customers pay reliably. Factoring charges a fee on every invoice and often notifies customers, while a line charges interest only on what's drawn. Distributors growing faster than a line can support, or with customers who pay slowly, sometimes find factoring's capacity worth the cost.
Can a distributor with supplier financing get a line?
Often, if the supplier's lien doesn't cover the same assets. Funders review supplier agreements to see what's pledged. A line secured by receivables can sit alongside supplier financing that's secured only by the supplier's own goods, as long as the documents are clear.
More for wholesale distributors
- Same-day merchant cash advance for wholesale distributors
- MCA consolidation for wholesale distributors
- How funders read wholesale distributors
- Business line of credit: how it works
Run your own numbers with the MCA APR calculator.
Want to see what fits a wholesale distributor like yours?
Tell us your slow months and your open advances, and we'll shop the file with funders whose programs fit. Call 877-FUND-654 with any question. We call you back, usually the same business day, and we always talk with you before we shop your file.