Asset-Based Lending

Datafordummies · Site Admin

Asset based lending is a specialized method of providing structured working capital, fixed term loans, factoring and leasing that are secured by accounts receivable, inventory, machinery, equipment, and/or real estate.

Working capital and term facilities are provided to companies with a proven track record of positive cash flow. Target companies are those in significant growth or acquisition situations.

Asset based lending programs are a viable alternative for companies that have been turned down by their bank or exceeded their bank loan limits. Many company owners are discovering that obtaining traditional bank financing for business capital can be a complex, time-consuming and frustrating process. With an increasing amount of regulations and restrictions impeding bank loan approval, a growing number of businesses are finding the avenues of traditional bank financing closed off to them.

Remember, approximately 75% of the commercial loan requests submitted to banks get turned down. As an entrepreneur, it is imperative that you do not waste your time and loose market opportunities because you are attempting to obtain financing from sources that will in all likelihood turn you down.

Asset-based lending programs enable you to:

Kick-start your business
Address cash flow crisis caused by seasonality peaks and valleys
Recover from a series of financial challenges
Increase your sales
Expand your Business
Finance your Business' Growth
Obtain the best trade terms from your suppliers
Take advantage of trade discounts and special pricing terms
cannot be obtained without quick payment
Seize business opportunities
Seize market opportunities
Improve your Credit Rating
Increase your profit margins through greater sales volume and
enhance overall corporate growth
Free up your Bank Credit Facilities
Payoff or restructure your obligations
Payoff back taxes

Who benefits from Asset-based lending?
Companies experiencing rapid growth
Highly leveraged companies
Companies with a short operating history
Turnaround situations
Companies with negative cash flow
Companies with past losses

Who benefits from Asset-based lending?
Companies experiencing rapid growth
Highly leveraged companies
Companies with a short operating history
Turnaround situations
Companies with negative cash flow
Companies with past losses

Typical borrowers
Manufacturers, Wholesalers, Distributors, Dealers, Retailers and Service businesses with $1 million to $100 million in annual sales or total assets of $500,000 minimum

Typical Range Of Advances Based On Assets:

A/R - Up to 90% advance on eligible A/R

P.O.s - Usually 60% of material costs plus labor

Inventory: Raw materials 10 - 60%, Work in progress 10 - 60%, Finished goods 25 - 65%

Equipment: 60 - 75% liquidation/80% purchase price

Real Estate: 70 - 75% of Appraised Value less mortgage

Personal Collateral: Will be considered if needed

Asset based loans are made on a formula basis on assets. Eligible companies will need to demonstrate: (1)reasonably professional management, (2) good bookkeeping, (3) product and business model that makes sense, (4) willingness to have assets audited.

Terms/Cost
Six months to 3 years. It is practically impossible to give rates without an evaluation of the company's risk level, loan amount, and assets used. It will be based on the Prime Rate plus a percentage dependent on the above factors.