Asset Based Lending

Financial Statement

Is Asset-Based Financial The Answer You Need?

Pat yourself on the back if you’re one of the companies that survived the recession. Perhaps you were treading water for a while, but hopefully you are getting your footing again in this crazy financial market. You may feel like you have been on a roller coaster with all the ups and downs. Hopefully, you’re seeing light at the end of the tunnel. There are many companies who find themselves in the same situation and they too have been able to slowly recover.

Most businesses that were in a financial predicament, found that they could stay afloat by aggressively managing their receivables and inventory. Of course they also had to delay any capital expenditures and cut back, but they are still alive. Sales have continued to rebound, and many companies need to have working capital to be able to fill new orders and stock their inventory. Unfortunately, because of the turn of economic events, you may not be able to get a traditional bank loan like you did before. Banks don’t like to see high leverage along with deteriorating collateral. When a business is no longer bankable, what options to do you have left?

ABL, or Asset Based Lending may be what you’re looking for. It’s a funding alternative that is viable for some companies. It seems to work for fast-growing businesses or new start-ups that have come aboard after the financial crisis. Before considering this type of loan, there are some things you need to know like an alternative staffing factoring option. In a traditional bank loan, the bank will be looking at your projected cash flow and ability to repay. They will want to see a balance sheet or income statement to help them gauge your cash flow for the future. However, with ABL the concern shifts to the performance of assets that are being pledged as collateral. For example, they will look at the inventory on hand and the accounts receivable numbers. It’s all about what you’re promised for tomorrow.

ABL is usually based on 70-90% of the value of the accounts receivable list at the time of the loan. The bankers will look at the quality of the debtor base and see if these look like collectible debts. For instance, if you have receivables that have been sitting there for 90+ days, they are not likely to include them in the equation. From the quality of the list, the bank will establish a borrowing base. They may require monthly statements just to ensure their base is sound. One of the most important parts of ABL is collateral verification and monitoring. ABL is not for everyone, but it may be the answer to your funding issues during your recovery period.