Asset-based financing enables your company to leverage different assets such as accounts receivable, machinery, and inventory. It provides your business with immediate funds to pay for operational expenses, finance new orders, or make strategic investments.
Asset-based loans (ABL) are an attractive option for small and middle-market companies who need a flexible financing solution. They have simpler qualification requirements than conventional financing and are easier to obtain.
For more information, fill out this form or call us toll-free at (877) 300 3258.
Note: Companies looking only to leverage their accounts receivable should consider sales ledger financing. The solution works like an ABL secured by A/R but has simpler qualification criteria and lower minimums.
How does asset-based financing work?
Asset-based loans can operate as revolving facilities, term loans, or a combination of both. The components of the ABL that are secured by accounts receivable and inventory operate as revolving lines. ABL components secured by machinery and other assets operate as term loans.
ABLs use a borrowing base, which is determined by the type and value of the collateral. The borrowing base determines how much financing you can use at a given time.
a) A/R or inventory
Lines secured by A/R allow you to withdraw up to 85% of the eligible receivables at any time. The line is paid back as the invoices are paid through normal operations.
Lines secured by inventory work like lines secured by accounts receivable. However, they allow you to withdraw around 50% of the inventory value. The percentage you can leverage depends on the type of inventory, its quality, and the appraisal method. These lines settle once the inventory is sold and the end client pays their invoice.
b) Machinery and other assets
Machinery and other assets are leveraged using a term loan structure. The borrowing base and availability depend on the asset type, marketability, and other factors.
You can learn more by reading “What is Asset-Based Lending?”
Asset-based financing solutions have several advantages over other solutions. These include:
- Improved liquidity
- Quick deployment
- Fewer covenants
- Lower costs than comparable options
- Simpler qualification criteria
To learn more about the benefits of our solutions, read “Six Advantages of Asset-Based Loans.”
One of the main advantages of using asset-based lending is that the solution is flexible and solves a number of business problems. Common uses include:
- Working capital improvements
- Turnaround situations
- Leveraged buyouts
- Debtor-in-possession financing
- Corporate acquisitions
We can work with companies that offer products and services to other businesses or government entities. Industries we work with include:
Asset-based lending facilities have simpler qualification criteria than comparable solutions. In most cases, we can provide an underwriting decision quickly and funding shortly thereafter.
Qualification criteria include:
- Minimum $1,000,000 line size
- Solid client base
- Assets must not be encumbered
- Other assets to use as collateral, as required
- Ability to provide financial statements
- No serious tax/legal troubles
- Profitable or turnaround plan in place
- Seasoned management
Regarding item #3, we must be able to secure a first-position lien against the assets you want to leverage. If you have financing, your lender must be willing to subordinate their position on those assets.
To find out if we are the right solution for you, fill out this form or call us toll-free at (877) 300 3258.
Choose the right asset-based lender
The decision to use an asset-based financing solution is strategic and should be made carefully. The right financing partner can be critical in helping you achieve your corporate objectives.
Consider discussing the following as you interview potential lenders during due diligence:
a) How long have they been in business?
We think the longevity of an asset-based lender is important. It indicates they know how to manage an asset portfolio, especially if they have been through a recession or two.
Interview the management team if your lender is relatively new. You will likely get better results if your lender is managed by seasoned industry veterans.
b) Do they have experience in your industry?
You are usually better off if you work with an asset-based lender with experience in your industry. You will usually get better terms because the lender understands the risks and nuances better than its competitors do.
c) What collateral do they typically fund?
Some asset-based lenders have collateral preferences, while others don’t. For example, some lenders favor accounts receivable or inventory. Others are comfortable with many asset classes, including equipment, machinery, and real estate. You usually get better terms if your company’s collateral matches the lender’s preferences.
d) Are your clients notified of the relationship?
Some lenders may notify your clients of the lending relationship. This depends on the type of financing and the risk profile. Lenders that finance your receivables may notify your clients to secure their rights. Notifications are typical in the lending industry and vary by lender.
e) How will customer payments flow?
Client payments may flow through the lender if you get A/R or inventory financing. In both cases, client payments may be through the lender. This varies by lender and risk profile, though.
Get an instant quote
We can provide asset-based financing at competitive terms. For more information, get an instant quote or call us toll-free at (877) 300 3258.
To learn more about our asset-based financing programs, read: