How does an Asset Based Lending Line of Credit work?
After the business seeking funding applies for an Asset-Based Lending facility, the lender performs an evaluation of the applicant’s assets to determine the approved amount of revolving funding. A common approved advance amount on the borrower’s accounts receivable collateral is 85%. Often at least 50% of inventory value will be approved as a loaning amount. Borrowing companies may need such revolving lines of credit for many different purposes, including purchasing new inventory, restocking current inventory, and meeting payroll demands. Other reasons for needing ongoing business advances are company advertising, marketing and promotion, and regular upkeep of an office, store, showroom, factory, or warehouse facility.
Asset Based Lending Businesses Benefits
The majority of our prospective clients are undercapitalized companies that have good performing receivables and are growing faster than their cash flow intake. Asset based financing works well with manufacturers, distributors and service companies with a leveraged balance sheet whose seasonal needs and industry cycles often disrupt their cash flow
Once the lender approves the borrower for funding and the amount of an asset-based line of credit is established, a lending agreement along with a loan repayment schedule must be accepted by both lender and borrower. Lender then issues the advance amount agreed upon on weekly, monthly or quarterly scheduled lending dates, as agreed.
The borrower repays these ongoing cash advancements according to the scheduled repayment dates. Once a borrowing company has established a good loan repayment record with the lender, the line of credit may often be increased, usually sooner than it would be with use of a term loan.
Typically, small to mid-sized businesses are the most in need of asset-based revolving funding since this type of monetary advance transaction can often be completed very quickly. Also, repayment schedules may be customized and less rigid than the schedules a term loan agreement would allow.
For prompt loan approval, company owners and officers must be prepared to provide detailed financial statements and accounts receivable and accounts payable records. The lender may also require personal financial records from the business owner or owners. Other items required by the lender may be copies of invoices to be purchased and individual customer purchase orders, as well as accurate business equipment listings. In some cases, the company applying for funding must provide the lender with a copy of their articles of incorporation and by-laws.
Asset Based Lending Versus Bank Financing
The fact is banks prefer to lend on stationary tangible hard assets, and occasionally inventory and receivables are considered as part of the borrowing base but at a low advance rate. We can offer higher advance rates due to our experience in receivable valuation. In the event where the client already has a bank line of credit, an Inter-creditor agreement can be made between the bank and our partners where the receivables are assigned to them and therefore allows the client to borrow at higher advance rates.
We are able to serve many industries with our asset based lending services, including:
Why Asset-based Lending?
We recognize that not every company’s best assets are reflected on its balance sheet. The structure of asset-based lending solutions generally allows for higher leverage and a more flexible covenant package than typical commercial lending arrangements
Asset-Based lending (ABL) is a great solution for businesses that have needs that are outside the realm of what traditional banks can offer. Whether it’s greater leverage, softer covenants, or more flexibility, asset based structures can be customized to meet the needs of each
Asset-Based lending offers more flexibility than other methods of financing, and is a fast and cost-effective way to obtain working capital. Unlike certain types of structured financial products, with an asset-based lending relationship, you do not have to give up equity in your company. ABL gives your company the flexibility it needs to grow, recapitalize, take advantage of supplier discounts, buyout shareholders, or even to fund payroll. It can increase or decrease based on your current business size and needs, and you’ll have daily and weekly access to your line of credit when you request it.
Our Asset-Based lending solution provides ample working capital and speeds up cash flow, enabling our clients to pursue new growth opportunities. Government contractors and other small businesses that are unbankable or do not qualify for bank financing in adequate amounts often qualify for asset based lending or invoice factoring.
As an alternative to traditional financing, Asset-Based Loans monetize the assets on your company’s balance sheet. They are typically revolving lines of credit secured by a company’s accounts receivable, inventory, and certain fixed assets. Asset based loans are a specialized product that can provide funds that allow your company to focus on its strategic goals, such as acquisitions, restructuring and turnaround situations, and business growth.