Business Growth through Asset Based Lending

Did you ever need cash to support growth but could not convince a bank to offer traditional financing? It may be time to consider alternative financing ideas including Asset Based Loans, commonly referred to as ABLs. ABLs are offered by large banks, small banks and specialty finance entities.

What is an Asset Based Loan?

Asset based lending is simply a loan secured by an asset. Preferred assets are accounts receivable and inventory. The idea being that these ‘assets’ or combination of various assets are the collateral value the lender needs to feel secure in offering the loan. Depending on the company’s industry, history and other influences the lender will determine the level of risk of the loan.

Why an Asset Based Loan?

Asset based loans have rapidly grown in popularity. Asset based lending qualification is determined more by collateral quality than by credit history. Which means a company with little credit can still receive this type of financing based solely on their assets. Companies with exceptionally valuable inventory or accounts receivable may find asset based loan terms more suitable for their needs. Closing time on an asset based loan can also be quicker than traditional financing. It must be noted that some lenders will require an appraisal before closing on an asset based loan. Pricing on ABL facilities can vary widely depending on the liquidity of the asset and perceived quality in the event of a liquidation of the borrower. ABL lenders require a first lien position on these assets in almost all cases.

Basic Steps to Receive an Asset Based Loan:

1. Determine why your company needs the loan and what the uses are for the new funds.

Will this cash inflow allow the company to be more successful?
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Will the terms of the loan hinder the business?
Can the company benefit more from the cost of borrowing?
2. Ensure the company’s financial statements are up to date.

3. Review reporting systems and ensure company internal controls are adequate and functioning.

4. The lender will want to begin due diligence on your company.

Be prepared prior to discussions.
5. Negotiate the loan agreement. Be aware of standard requirements and market conditions.

6. Review all documents with an attorney skilled in with the banking transactions.

7. Be prepared to sign a personal guarantee and show a personal financial statement, if required.

8. Begin using the proceeds to grow your business immediately upon funding.

RVR can be there every step of the way in this process.

RVR can review your business needs and conduct an analysis to help determine your options for obtaining debt or equity capital and how to get there in the current environment.
RVR can help you update your financial reporting systems and design a system of corporate controls and governance that you can confidently show to a lender.
RVR can assist in finding the right lender to secure the funding you need.
RVR can assist with due diligence and preparation.
RVR can help you determine a fair value for your assets or find an appropriate appraiser.
RVR can assist with negotiating terms with lenders or other capital brokers, banks and lending funds.
RVR can help structure the plan to use the loan proceeds to accomplish your goals.


Published on 12th September 2013 by Frank Fontneau
Categories: Finance, Strategy

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