A lender will typically develop a borrowing base formula to determine how much it can lend to a particular business. The formula will generally be reduced by certain nonqualifying assets, such as receivables that are past due and inventory that has aged beyond a certain specified period of time. The lender also takes into account the predictability of a borrower's cash flow that is used to service senior debt. Thus, the effective advance rates for an RLOC business loan is almost always lower than the reported advance rates. A RLOC is generally the cheapest type of business loan available to a company because the assets collateralizing it are liquid.
Interest rates can range from just under prime to three over prime.
RLOCs generally have a term of one to three years with renewal provisions, but it is common for them to have no set schedule for principal repayment. All Rights Reserved.