Asset-based lending

Secure a loan against the assets of your business and take advantage of better interest rates

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Asset-based lending is a common way for businesses to improve their working capital if access to traditional financing is difficult.

As with all financial products, it is important to have all the information on how it works so that you can make the right decision for your business.

Why asset-based lending?

Better interest rates

Secured against the assets of your business which lessens the risk to the lender resulting in more favorable interest rates than an unsecured loan

More flexibility

The focus is on the quality of the asset to be secured and less on the credit rating of your business

Fewer covenants

There are typically fewer covenants with asset-based lenders as they focus more on the quality of the asset to be secured and less on the credit rating of the business

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Types of asset-based lending

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Accounts receivables

Once services have been rendered and a sale is official, an invoice is created and sent to customers. The invoices of a business are the primary asset that secures the asset-based line of credit or asset backed term loan. The loan to value can range, but average advance rates are 90% of the invoice amount. Some of the variables affecting the advance rate are payment terms, credit strength of each customer and the concentration or diversification of customer base.

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Invoices

When a customer places an order they issue a PO which outlines the order. The purchase order will show the order date, when goods are to be shipped, the quantity, and price per unit. The asset based lender will review the terms of the PO to understand who the customer is, the credit worthiness, and the value of the PO.

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Inventory

It is common that business owners value inventory at retail, but any asset based lender will look to understand what they can sell the inventory or in the event of a default. Some of the factors affecting the advance rate include the location of where inventory is stored, type of goods and how easily inventory can be sold if needed.

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Equipment

By taking the make, model, year and the condition of the equipment a lender will have the ability to assign a value to the equipment. The typical advance rates or LTV assigned to equipment and machinery is 60% of the FLV or forced liquidation value. This means that the lender will provide availability based on what they would be able to see the equipment for in the event of a default.

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Property

In most cases, commercial real estate will be used as an additional asset to provide liquidity on an asset-based facility, rather than the primary asset used to secure the loan.

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What can I use the funds for?

  • Purchase new equipment
  • Acquire a business
  • Supplier deposits
  • Hiring staff
  • Launching a new product
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Industries taking advantage of asset-based lending

Manufacturing

Construction

Wholesalers

Transportation

Business services

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Whether you are growing rapidly, have seasonal cash fluctuations or are looking to grow your business via new equipment or a new contract, asset-based lending is a good way to unlock the capital required.

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