Fast-growing businesses often find themselves in a paradox. Sales are booming. But, cash is tight. And, many times, it's not an issue with profitability. Rather, it's a timing issue. Because, as sales increase, so does the float. Payroll, vendors, and production costs have to be covered well before cash lands in the bank.
The solution? A right-sized line of credit (LOC) that grows with the business AND provides the working capital needed to bridge the gap. But too often, businesses settle for what's offered rather than securing what they truly need.
This guide breaks down the process into four critical steps:
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Calculating the appropriate LOC size
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Identifying the right treasury partner
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Making the request
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Managing the rest of the process to close
Step 1: Calculate the Right Size of the Line of Credit
The first step is internal: building a data-backed model to determine how much working capital the business actually needs.
Analyze the Operating Cycle
Start by understanding the company’s cash conversion cycle:
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Accounts Receivable Days (DSO)
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Inventory Days
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Accounts Payable Days
The formula:
Cash Conversion Cycle = DSO + Inventory Days – Payables Days
This number reflects how long cash is tied up before replenishment.
Quantify the Float
Multiply the daily average spend by the number of float days. For example, a company with a $2M monthly spend and a 60-day cycle would need a LOC around $4M.
Model Forward
Create a 12–18 month projection of working capital needs based on:
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Sales growth
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Seasonality
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Hiring plans
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Inventory expansion
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Large client terms
This forward view helps justify the ask and prevents another request six months down the road.
Pro Tip: Banks respond best to math, not guesswork. Bring a model that ties back to real activity—past, present, and projected.
Step 2: Identify the Right Treasury Partner
Choosing the right partner matters just as much as choosing the right LOC amount. Not all lenders are created equal—and not all are built for fast-growth companies.
Match the Lender to the Business
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Regional partners may offer more flexibility and hands-on support
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National partners often have robust systems but tighter credit policies
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Industry-specific lenders may bring a deeper understanding of business nuances
Evaluate the Relationship, Not Just the Rate
A strategic treasury partner should:
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Understand the business model
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Offer proactive treasury solutions
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Serve as an advocate with credit committees
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Grow with the company
Run a Competitive Process
Approach at least 3 partners. Conduct structured interviews. Compare rates, covenants, draw periods, and support services side by side.
Pro Tip: Don’t just ask what a lender can offer. Ask what businesses like yours typically receive—and what the lender's sweet spot is for credit limits.
Step 3: Make the Request
This step is about controlling the narrative. A well-structured LOC request shifts the conversation from “what can we get?” to “here’s what we need and why.”
Prepare a Complete Financing Package
Include:
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Three years of financials
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Year-to-date P&L and balance sheet
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12–18 month forecast
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Cash conversion cycle analysis
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LOC sizing model
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Overview of operations, customer concentrations, and leadership
Include supporting commentary on growth drivers, customer payment trends, and margin expectations.
Be Specific
Outline the requested LOC amount, term length, interest preference (fixed vs. floating), financial covenant suggestions, and collateral approach. Lenders are more likely to meet expectations that are clearly defined.
Pro Tip: Be ready to speak to the use of funds. Saying “working capital” is fine, but breaking it into payroll, production float, or inventory scale-up builds credibility.
Step 4: Manage the Process from Term Sheet to Close
Once lenders respond, the process moves into underwriting and negotiation. This is where preparation pays off.
Compare Term Sheets
Evaluate:
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Facility size and structure (revolver, draw-down, seasonal)
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Advance rates and collateral types
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Interest rates, fees, and renewals
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Financial covenants (DSCR, leverage, quick ratio)
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Guarantee requirements
Push for changes where needed. It's not personal—it's business.
Facilitate Underwriting & Due Diligence
Expect requests for:
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AR and AP aging reports
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Inventory listings
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Tax returns
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Corporate documents
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Key customer contracts
Timely responses keep momentum. Delays kill deals.
Review and Negotiate Legal Docs
Have legal counsel review:
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Credit agreement
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Security agreement
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Guaranty agreement
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Board resolutions and UCC filings
Avoid boilerplate terms that don’t reflect what was negotiated.
Pro Tip: The term sheet is not the finish line—it’s the halfway point. Stay involved and push for alignment between what was promised and what’s written.
A right-sized line of credit is a strategic asset—not a last resort. When properly sized and supported by the right partner, it enables growth, reduces financial stress, and provides flexibility for what’s next.
Many businesses wait too long to address their working capital structure. And, by that point, the cash pressure is already dictating decisions.
The William Stanley CFO Group helps high-growth organizations secure the capital they need, when they need it, with terms they can live with. Don’t let cash timing limit your growth. Contact us, today.
