What Is The Eligibility Criteria For Secured Working Capital Loan?

Answer 1

A secured working capital loan is based upon the value of the assets securing the loan. It depends on the type of the asset. For example, a lender might make a loan based on 70% of a borrower's eligible accounts receivable and 50% of the value of the borrower's eligible inventory. Those percentages will vary based upon what the lender perceives as its risk. For example, if the inventory consists of highly perishable products or products that will become rapidly obsolete, a lender may only be willing to 40% or less based on the value of the inventory. If the accounts receivable all are from A+ customers with good payment histories, a lender might be willing to loan up to 80% of the accounts receivable.

Not all accounts receivable or inventory is "eligible." In other words, some accounts receivable and inventory are excluded from the calculation of eligible accounts receivable and inventory. In the case of accounts receivable, the definition of eligible accounts receivable will often exclude, among other factors:

• accounts receivable that are already past due by a certain amount of time
• accounts receivable that exceed an account debtor's credit limit
• accounts receivable from affiliates of the borrower
• accounts receivable from account debtors who are in bankruptcy
• accounts receivable from account debtors located in a foreign jurisdiction

Similarly, eligible inventory will often exclude inventory that is slow-moving or obsolete.

Answer 2

To be eligible for a secured working capital loan, an applicant ought to represent a business that has been running for a specific amount of years and/or earning a certain annual turnover. Those standards vary among the type of business enterprise you represent and the lender getting the application.