Asset-Based Lending (ABL) can
provide manufacturers and distributors with one-stop shopping for much
of their financing needs. Unlike financial statement lending and
credit score lending as practiced by much of the banking community,
asset-based lending focuses heavily on the collateral (and liquidation
value) of accounts receivable, inventory, and equipment.
How It Works
Similar to factoring, asset-based
lenders will typically create a loan based on 75-80% of the face value
of accounts receivable. Unlike factoring, this "borrowing base"
will also include an amount for inventory (perhaps 50%) as well as
equipment (perhaps 75% of estimated liquidation value. The
borrower tenders invoices or sales reports each week which are used to
calculate the current borrowing base and the lender advances funds for
replenishment of inventory and, in some cases, purchase orders.
Who Can Use Asset-Based Lending?
Unlike factoring which is available
to even the newest startup company, asset-based lending requires that
a business has at least some operating history. Whereas most
factors don't base their financing decisions
on credit history, asset-based lenders require financials that will
support repayment of their loan. To be put simply, asset-based
lenders fill the void between factoring and traditional bank term
loans and especially when inventory (which is not a consideration in
factoring) is involved. Asset-based credit facilities tend to be
slightly larger than factoring with $500,000 and up being the norm.
When seeking asset-based lending, the borrower should...
be able to provided business financials
have at least a 3 year credit history.
seeking at least $500,000 in financing.
be prepared for periodic audits of
inventory and accounts by the lender.
Benefits of Asset-Based Lending
Asset-based lending provides a
one-stop shop in financing for manufacturers and distributors.
Fees and interest rates for asset-based revolving lines of credit are
slightly less than factoring and slightly higher than typical bank
term loans. Asset-based lenders, however, tend to be more
accommodating and flexible than banks in their financing methodology
and often will supply funds for purchase orders and international
trades as well as domestic.
At East Bay Factors, we maintain an active database of some
of the nation's largest providers of asset-based finance. To
explore if asset-based lending is right for you,
contact us or complete our short