Why is a credit line central to distribution?
A distributor's business model is cash in the middle. You pay suppliers on their terms, hold inventory until it sells, then extend terms to your own customers. Margins are often thin, so the business depends on turning inventory and collecting receivables efficiently. A revolving line absorbs that cycle without tying up owner cash.
Scenarios we see:
- A supplier offers better pricing for a larger quarterly order, and the line funds the purchase.
- A new regional customer requires net-60 terms, stretching receivables.
- A product line grows, and average inventory rises permanently.
That last case, a permanent increase, may belong partly on a term loan.
How does a borrowing base work for distributors?
With a secured line, availability is often set by a borrowing base: a share of eligible receivables plus a share of eligible inventory, updated through regular reports. As receivables and inventory rise, availability can rise with them. Funders typically exclude receivables that are past due, owed by affiliates or concentrated in one customer.
Inventory is usually valued more conservatively than receivables, especially slow-moving, obsolete or highly perishable stock. Accurate inventory systems and prompt borrowing base reporting keep availability steady. Our lines of credit page explains secured versus unsecured lines.
How are warehouse equipment and delivery vehicles financed?
Forklifts, racking, conveyors, warehouse management systems and box trucks or vans used for local deliveries usually fit equipment financing, with the asset as collateral and payments over its useful life. Keeping these purchases off the credit line preserves availability for inventory and receivables, where the line earns its keep.
A specific lien on the financed equipment, rather than a general lien, keeps receivables and inventory available for the line. Ask for that structure when your credit and cash flow are strong. See equipment financing for loan and lease trade-offs.
What do underwriters look at for distributors?
Underwriters typically focus on inventory turnover, receivables aging and days to collect, gross margin stability, customer and supplier concentration, and whether revenue growth is outpacing the cash to support it. Financial statements and tax returns anchor the review, and the balance sheet matters a lot because inventory and receivables dominate it.
- Supplier concentration: relying on one manufacturer's product line raises questions about that relationship's terms and stability.
- Margins: show how pricing held when supplier costs rose.
- Reporting: expect ongoing monthly or periodic reports with a secured line.
When should a distributor rethink its structure?
Rethink the structure when the line sits near its limit for months, when renewal came back smaller, or when the bank froze or reduced availability. Those signals often mean part of the need is permanent or the company has outgrown a single funder. Splitting permanent and seasonal needs usually helps.
Common fixes include moving permanent inventory growth to a term loan, financing equipment separately and adding a second funding relationship. If your bank just changed your line, read what to do when a bank reduces your line.
What you’ll typically need
- Business tax returns and year-to-date financial statements
- Accounts receivable aging report
- Inventory report with aging or turnover detail
- Top customer and supplier lists
- Schedule of existing business debts
Frequently asked questions
How is inventory valued for a distributor's line?
Funders typically value inventory at a discount to cost, reflecting how easily it could be sold. Fast-moving, widely sold products are usually treated more favorably than slow-moving, customized or perishable stock. Accurate records and aging detail help the funder assign value. Specific percentages vary by funder.
Do lenders exclude some receivables from the borrowing base?
Usually. Receivables that are significantly past due, owed by related companies, disputed, or concentrated in a single customer above a set share are commonly excluded or limited. Keeping collections current and customer credit limits disciplined helps maximize eligible receivables.
Can the line grow with seasonal inventory?
With a borrowing base, availability can rise as eligible inventory and receivables increase, within the overall limit. Some funders also offer seasonal limit increases. Share your seasonal pattern upfront so the facility is sized for your peak rather than an average month.
What reports will a distributor need to send?
Secured lines commonly require periodic borrowing base certificates, receivables and payables aging, and inventory reports, plus annual financial statements and tax returns. Frequency varies by funder and facility size. Clean reporting builds trust and can support limit increases at renewal.
Is a secured line required for distributors?
Not always. A distributor with strong cash flow, low leverage and strong credit may qualify for an unsecured line, though typically with a smaller limit. Larger inventory-heavy needs are more commonly met with a secured line because the assets support more availability.
Keep inventory moving and customers stocked
Share your receivables, inventory and financials, and we will compare line structures from our funding partners.
Updated September 14, 2026 · 1Prime Capital Funding Team