Short answer: You can replace a working-capital line without issuing equity if the business will collect enough cash to repay it. First agree how the existing bank will be paid back. Then arrange replacement funding that you can draw before the reduced line leaves you unable to pay a supplier.
Your bank has lowered the limit just as seasonal orders need placing. A new lender may offer a large facility yet release nothing until goods are delivered. You need to know what cash will reach your account, and when. For a family business approaching non-bank lenders for the first time, our guide to institutional borrowing for family businesses explains the decisions involved.
This guide is for owners and CFOs of mid-sized trading, distribution and manufacturing companies. It covers Southeast Asia and India. It also covers Benelux and DACH. For a country comparison, read working-capital alternatives for Philippine companies.
Confirm what the bank is actually cutting
Get the bank's decision in writing so you know when cash will become short.
A lower limit can stop new borrowing or force you to repay money already drawn. Tighter rules can also reduce what you can borrow against your stock. Ask why the bank is making the change.
Ask for a schedule of each facility and what it already supports. An import letter of credit can use the limit before you draw cash. Check whether the bank will keep existing trade instruments in place and whether it wants a cash deposit against them.
Then propose a documented transition: retain an agreed limit through specific purchase dates, reduce it against specified collections, and release defined security when the agreed payoff is received. Show how customer payments will fund that repayment. Get the arrangement signed.
Have counsel check the bank's rights and the changes you need in the loan documents. Our guide to debt covenants explains restrictions that can affect new borrowing.
Find the first cash deadline and the full replacement requirement
Forecast cash week by week to find the first payment you cannot cover.
Start with a 13-week forecast and extend it through the last seasonal collections and loan repayment. Separate three amounts:
- Cash to operate: the gap between receipts and unavoidable payments, plus a minimum cash buffer.
- Cash to switch lenders: the old bank's repayment and the costs of moving. Include any deposit needed to keep a guarantee running.
- Cash you can draw: what the new lender will actually release on each date.
Count the bank repayment once. After a full refinancing, remove the old line from the forecast. If you are adding a second lender, check that both facilities can remain available.
Test slower customer payments and stock sales. Then test a delayed closing. An overdue invoice may both delay your cash and become unacceptable to the lender, reducing what you can borrow.
Choose funding for the stage at which cash leaves
Match funding to the payment it must cover, so it arrives before you need it.
For example, finance against a completed invoice cannot pay a supplier deposit due before production. The table shows which routes to test.
| Cash event | Route to test | What must be true before relying on it |
|---|---|---|
| Existing seasonal borrowing must be replaced | Another bank revolver or a receivables-and-inventory facility | The lender accepts your assets and repayment plan. Both banks agree how the old loan is repaid and its security released. |
| Goods are delivered and invoices accepted | Invoice discounting, factoring or an existing buyer-led early-payment program | The lender accepts the invoices. Customers can pay into the agreed account, and the lender can receive those payments. |
| Supplier payments precede shipment or invoicing | Trade or purchase-order finance; customer deposits | The order leaves enough cash to repay after delivery. Check which supplier costs the lender will pay. |
| Stock is held before seasonal sales | Inventory finance, potentially within a combined asset-based facility | The lender accepts your stock and its value. Ask whether it excludes unfinished goods or stock still in transit. |
| Equipment has absorbed the operating line | Equipment refinancing or sale and leaseback | Cash remains after paying existing debt and costs. Later repayments fit the forecast. |
| A short timing gap remains | A documented bridge or shareholder loan, if feasible | You can repay on time and have permission to borrow. Repayment cannot depend solely on an unapproved loan. |
A manufacturer may have unfinished goods that a lender will not accept. Show lenders when stock should turn into cash.
If one lender funds purchases and another funds invoices, agree how the first gets repaid. Part of the invoice advance may go straight to that lender. Count only the cash left for operations; do not count the same assets as funding from both lenders.
A worked example: a larger facility can still leave too little cash
Calculate what remains after paying the old bank, because that is what can fund your next orders.
North Quay Components is an explicitly fictional distributor. These assumptions are illustrative, not lender quotations. The borrowing base is the amount the lender allows against eligible invoices and stock.
| Assumption | Illustrative value or treatment |
|---|---|
| Currency and scale | EUR millions; chosen only for illustration |
| Existing bank line and current drawings | Limit 3.00; drawings 2.40 |
| Announced reduction | Limit falls to 1.80 at the start of week 4 |
| Operating cash position | Cash equals the minimum buffer; nothing spare for the switch |
| Additional operating need through week 8 | 1.20 after receipts and payments, preserving the buffer. Excludes bank payoff and refinancing costs. |
| Proposed transaction | Full refinancing as week 4 starts. Lender accepts all eligible assets; payoff and security release happen together. |
| New headline facility limit | 4.00 |
| Receivables at closing | 3.00 gross; 0.50 excluded; 80% advance on the eligible balance |
| Inventory at closing | 3.00 gross; 1.00 excluded; 50% advance on the eligible balance |
| Reserves and upfront costs | 0.15 availability reserve; 0.05 cash fees and closing costs |
| Interim availability | Borrowing base unchanged until week-8 trough. No other facilities or contingent exposures. |
| Commercial mitigation | 0.50 of supplier payments moved from week 8 to week 11 by written agreement; no added fee |
| Post-peak repayment assumptions | 1.70 cash surplus in weeks 9–12 before the deferred supplier payment and new-facility interest; 0.10 cash interest; all other operating payments included |
| Week-12 facility position | Borrowing base falls to 2.10 after collections and stock sales; contractual maturity is after week 12 |
| Calculation | EUR millions |
|---|---|
| Repayment required if the company stays with the reduced bank line | 2.40 − 1.80 = 0.60 |
| Total gap under that stay-with-bank case, before any new funding costs | 0.60 + 1.20 = 1.80 |
| Eligible receivables advance | (3.00 − 0.50) × 80% = 2.00 |
| Eligible inventory advance | (3.00 − 1.00) × 50% = 1.00 |
| Gross drawable replacement funding | Lower of 4.00 and (2.00 + 1.00 − 0.15) = 2.85 |
| Cash left after the full old-bank payoff and upfront costs | 2.85 − 2.40 − 0.05 = 0.40 |
| Uncovered operating requirement | 1.20 − 0.40 = 0.80 |
| Residual requirement after the supplier deferral | 0.80 − 0.50 = 0.30 |
| Later cash available for repayment, after the deferred payment and interest | 1.70 − 0.50 − 0.10 = 1.10 |
| Repayment needed to bring the fully drawn replacement within its week-12 borrowing base | 2.85 − 2.10 = 0.75 |
| Cash remaining for a residual bridge, before its own fees and interest | 1.10 − 0.75 = 0.35 |
North Quay still needs funding for the remaining gap, or it must buy less stock. Moving a supplier payment helps now but leaves a bill to pay later.
After the peak, customer receipts must cover both the main lender's required repayment and any bridge. Little remains for bridge costs. Test a delay in those receipts before placing the full orders.
Resolve security and payment continuity before choosing the lender
Agree how the old bank will release its security so the new lender can fund on time.
List the assets each lender already has rights over.
Ask both lenders to agree what gets released or shared, and what payment triggers that step. The closing plan should show:
- Who receives each payment, and when.
- When the old security is released and the new security takes effect.
- What cash remains for operations after costs and any deposits for outstanding trade instruments.
Name the person responsible for each filing. Also arrange for customer receipts sent to the old account to reach the right destination. Check when you can use those receipts or borrow again against new invoices. The switch must leave you able to pay staff and suppliers.
Apply the structure to the actual jurisdictions
Check the rules where you borrow and hold assets, because a structure that works in one country may fail elsewhere.
Sources below were reviewed on September 9, 2026.
Southeast Asia: a lender may accept a local invoice but refuse an overseas one. In Singapore, EFS Trade Loan applicants must be registered and operating locally. They need at least 30% qualifying local equity and must meet a group turnover ceiling. The participating financial institution decides whether to lend.
India: do not count TReDS proceeds until the transaction qualifies. RXIL requires both buyer and seller registration and counterparty acceptance of the invoice, and explicitly states that financing is not guaranteed. Trading businesses in particular need to check current MSME and activity eligibility with the platform. A future invoice cannot fund today's deposit.
Benelux: the Netherlands abolished contractual pledge bans for covered business receivables, with the reform taking effect in July 2025 and applying to earlier bans from October 2025. Scope and exceptions matter. The reform does not remove an existing lender's security or establish the rules in Belgium and Luxembourg.
DACH: unpaid stock may still belong to the supplier. In Germany, BGB section 449 addresses ownership retained until the purchase price is paid. Do not assume German rules apply in Austria or Switzerland.
Have local counsel check the proposed structure, including competing rights over assets and any restrictions on cross-border funding. Allow for currency costs in the forecast. Cash held by another group company may not be available to pay your supplier.
Compare offers by cash, repayment and ownership terms
Compare offers using the same payment dates so you can see which leaves enough cash to operate.
Ask for the total cash received and paid under each offer. Include costs deducted upfront and charges due when you leave. A monthly invoice fee cannot be compared directly with an annual interest rate.
Ask each lender to show what would reduce your available cash. For example, would one customer's late payment make its other invoices unacceptable too? Establish whether the line is committed and whether you can draw again after repaying. A requirement to repay early may clash with your busiest purchasing week.
If you will not give up equity, exclude warrants, conversion rights and equity participation. Have counsel explain any other terms that restrict your decisions, such as a lender's right to block dividends.
For factoring described as non-recourse, ask what happens if a customer refuses to pay because the goods were faulty. You may bear that risk despite cover for customer insolvency.
Run lender work and the fallback plan together
Prepare a smaller purchasing plan alongside the funding request so a delay does not leave you unable to pay.
Give lenders one consistent pack:
- The bank notice and current loan agreements.
- Recent accounts and the cash forecast.
- Customer balances showing overdue invoices and large exposures.
- Stock records showing age and location.
- Orders and supplier payment terms.
- The proposed borrowing and repayment dates.
Explain missed forecasts and disputes upfront. Put the CFO in charge of the cash plan. Operations should supply stock evidence, while the finance manager handles closing payments. Assign legal work to counsel. The board should approve the buffer, guarantees and cost.
Set the decision deadline before purchases become irreversible. Ask each lender what must happen before it can release funds, with an owner and date for each outstanding step. An indicative offer stays outside confirmed funding until its conditions are satisfied.
The fallback might be smaller orders, agreed supplier extensions or customer deposits. Compare the profit lost from buying less with the full financing cost. Get payment extensions in writing.
Know when replacing the line will not solve the problem
Check why cash stays short after the season, because a lasting gap needs a repayment plan beyond seasonal collections.
A profitable business that has grown may need permanent funding. Recurring losses need a different response. Preserving equity may mean buying less stock or slowing growth. Take more debt only if the company can repay it. If the lasting need is a new site, compare debt and minority investment for a factory or warehouse.
Before signing, show that cash covers the critical payment dates and later repayments. Check that the lenders have agreed the security release. If the plan still depends on an unapproved loan, activate the fallback before cash runs out.
Alehar's Raising Equity or Debt team can help prepare the request and approach suitable lenders. We can compare offers and coordinate with your advisers. Contact us with the bank's reduction notice, your next major supplier payment date and your current forecast to discuss the replacement plan.
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Get in TouchThis article is provided for general information only and does not constitute legal, tax, investment, accounting or other professional advice. The views expressed are those of the author. Information from third-party sources has not been independently verified. Please consult your own professional advisers before acting on this content.
