Most operating lines in Canada are demand facilities. That word does a lot of work. It means the bank is not obliged to give you a term, a warning period, or a reason — it can demand repayment and freeze the line while you are still in the middle of a normal trading week. Businesses discover this at the point it happens rather than at the point they sign.
The trigger is rarely a missed payment. Far more often it is a margin calculation that has moved underneath the borrower. An operating line is usually secured against receivables and inventory, advanced at a percentage of their value. If the bank's view of those assets changes — a slower collection cycle, an inventory position it now considers overweight, a covenant tested at the wrong month-end — the availability falls even though the business itself is intact.
The first thing to establish is whether this is a credit problem or an asset problem
They are different situations and they lead to different solutions. A credit problem means the business is not generating enough to service debt. An asset problem means the business is fine but the lender no longer wants to advance against what it owns, or wants to advance less.
The second case is far more common than owners assume, and it is the more solvable of the two. The assets have not stopped existing. Inventory that a chartered bank has decided to margin at a lower rate is the same inventory an asset-based lender may be willing to fund at a higher one, because the two are underwriting different things: one is protecting a broad relationship, the other is lending specifically against the asset and pricing for it.
What replacing a pulled line usually involves
- A current picture of the assets. Aged receivables, inventory by category and age, and what is genuinely realisable. This is the work that determines the size of the facility.
- A payout figure and a date. The incoming lender is refinancing the outgoing one, so the two have to be sequenced. This is normal and it is negotiated, not improvised.
- An honest account of why the bank moved. Concealing it does not work and costs credibility with the very lender you are asking to step in.
- A structure that does not simply recreate the problem. If the trouble was a margin formula that could not accommodate the inventory cycle, the replacement facility needs a formula that can.
The pricing is generally higher than the bank facility it replaces. That is the trade, and it is worth stating plainly rather than discovering later. The comparison that matters is not the rate against the old line, it is the rate against not having a facility at all.
What this looked like in one file
A distribution company was carrying higher-priced inventory as a result of COVID supply-chain disruption when its bank pulled the day-to-day facility.
- $4,000,000 asset-based facility arranged
- Proceeds used to pay out the existing line of credit
- Structured to support the company as a going concern
The inventory that had made the bank uncomfortable was the same inventory the asset-based facility was advanced against.
Historical example only. It is not a promise of terms, availability, or results for a future transaction.
What to do in the first week
Read the demand letter and establish the actual deadline, which is often shorter than the conversation suggests. Stop assuming the decision is reversible — occasionally it is, but planning on it costs the time you need. Get the asset schedules into a form someone outside the business can read. And start the replacement conversation immediately, because the timeline is set by the bank's demand, not by how long the refinancing would comfortably take.
If your operating line has been called or reduced, the relevant facility is usually asset-based financing or a revolving line of credit.