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Asset Based Lending for Inventory and Accounts Receivable
1st Commercial Credit offers Asset Based Lending at Higher Advance Rates than Banks
Have you exhausted your efforts at the bank?
1st Commercial Credit offers asset based lending for companies that need to maximize their borrowing capacity using accounts receivable and inventory as collateral. Receivable based financing combined with inventory finance has become a useful tool for many undercapitalized businesses.
Unlike traditional bank debt that relies heavily on balance sheet ratios and cash flow projections as loan criteria, 1st Commercial Credit will evaluate a client's business assets as its primary focus to establish the borrowing base. The result is usually far greater borrowing power than can be achieved from a traditional cash flow banking approach due to our expertise in industry specialization.
Asset Based Lending Verses Bank Financing
The fact is banks prefer to lend on stationary tangible hard assets, and occasionally inventory and receivables are considered as part of the borrowing base but at a low advance rate. 1st Commercial Credit can offer higher advance rates due to our experience in receivable valuation. In the event where the client already has a bank line of credit, an Inter-creditor agreement is made between the bank and 1st Commercial Credit where the receivables are assigned to 1st CC and therefore allows the client to borrow at higher advance rates.
- Financing Rates at 0.69% - 1.59%
- No Financials - No monthly minimums - No invoice minimums
- No facility fees - No audits - No up-front fees - No hidden fees
- Set up account in 3 to 5 working days - 24 hr funding thereafter
- Credit Lines starting at $5,000 & up to 10 million
- Customer referrals upon your request
- We Make Same Day Decisions
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Asset Based Lending Businesses Benefits
The majority of our prospective clients are undercapitalized companies that have good performing receivables and are growing faster than their cash flow intake. Asset based financing works well with manufacturers, distributors and service companies with a leveraged balance sheet whose seasonal needs and industry cycles often disrupt their cash flow.
Please note, asset based lending requires minimum sales volume for consideration. ($500,000 a month in sales)
Asset Based Lending is currently a major source of funding for many companies
Asset Based Lines of Credit are main attractions in today's competitive business world with fast and steady funding provisions. Since they supply a continuous flow of cash by means of revolving lines of credit, they provide financial support and stability to the day-to-day operations of their commercial borrowers. Each borrowing company's credit line is determined by the combined worth of its assets. These assets may include accounts receivable and inventory, business equipment, manufacturing machinery, certain contracts with recurring revenue, or personal assets of business owners.
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Commercial business borrowers then pay a fee to the lender which is based on the amount they borrow. According to the size and determined value of the company being funded, an asset-based revolving line of credit might equal any amount. The majority of businesses seeking financing today qualify for monetary advances of between $500,000 and $20 million. Aside from normal operational expenses, amounts borrowed can be spent for business restructuring and turnarounds. These advances can also be applied to the costs of company buyouts. Especially during times of economic growth, this type of revolving loan can be vital to facilitating mergers and acquisitions.
How Does an Asset Based Lending Line of Credit Work?
A business seeking funding applies for an asset based lending facility is usually a commercial credit issuing or financing company. The lender then performs an evaluation of the applicant's assets to determine the approved amount of revolving funding. A common approved advance amount on the borrower's accounts receivable collateral is 85%. Often at least 50% of inventory value will be approved as a loaning amount. Borrowing companies may need such revolving lines of credit for many different purposes, including purchasing new inventory, restocking current inventory, and meeting payroll demands. Other reasons for needing ongoing business advances are company advertising, marketing and promotion, and regular upkeep of an office, store, showroom, factory, or warehouse facility.
Once the lender approves the borrower for funding and the amount of an asset-based line of credit is established, a lending agreement along with a loan repayment schedule must be accepted by both lender and borrower. Lender then issues the advance amount agreed upon on weekly, monthly or quarterly scheduled lending dates, as agreed.
The borrower repays these ongoing cash advancements according to the scheduled repayment dates. Once a borrowing company has established a good loan repayment record with the lender, the line of credit may often be increased, usually sooner than it would be with use of a term loan.
These companies are most often in the manufacturing, wholesale and retail distribution, and sales business sectors. Their yearly profits may be anywhere between $1 million and $300 million or above. Typically, small to mid-sized businesses are the most in need of asset-based revolving funding since this type of monetary advance transaction can often be completed very quickly. Also, repayment schedules may be customized and less rigid than the schedules a term loan agreement would allow.
This type of funding can be the deciding factor in whether or not they will overcome any existing financial difficulties and attain success. For prompt loan approval, company owners and officers must be prepared to provide detailed financial statements and accounts receivable and accounts payable records. The lender may also require personal financial records from the business owner or owners. Other items required by the lender may be copies of invoices to be purchased and individual customer purchase orders, as well as accurate business equipment listings. In some cases, the company applying for funding must provide the lender with a copy of their articles of incorporation and by-laws.
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Acceptable collateral for most asset-based loans (ABLs) includes accounts receivable, inventory, business equipment, and factory machinery. Appropriate inventory may be both finished goods and marketable raw products. In some instances, certain personal assets of business owners may be requested by lenders as collateral.
- Accounts receivable. – This is the most popular type of collateral among asset-based lenders, due partly to the liquidity aspect of these accounts. Also, this form of collateral has a pre-set value.
- Inventory takes second place to accounts receivable on the list of collateral most favored by asset-based lenders. This is mainly because inventory lacks the stabilized value and liquidity of accounts receivable. It is necessary for inventory to be sold in exchange for cash to establish value. In addition, inventory aspects like LIFO and FIFO make value assessments difficult.
- Although they are often acceptable collateral for asset-based lending approval, manufacturing machinery and business equipment are usually more helpful for obtaining a term loan. Their worth as collateral is longer lasting and equal to the duration of their useful operation. Currently, trademarks and customer lists also can be used as collateral for some ABLs.
Since both accounts receivable and inventory are renewed throughout the year at periodic intervals, they are in the favored classification of eligible collateral.
Yet today they are the most frequently used method of funding for companies lacking an operational track record or acceptable credit rating. Especially for young and growing businesses, asset-based financing is often the best available option. Asset-based lenders base loan granting on collateral rather than on credit ratings, like commercial banks do. However, borrowers must be prepared to pay fairly high rates for borrowing. Also, lenders have the legal right to assume possession of the borrowing company's assets if payback amounts due become delinquent.
In addition, banks usually take much longer to approve loan applications than asset-based lending agents do, so prompt funding is often not available through banks.
Asset Based lenders require each commercial borrower to have its invoice payments deposited to a bank account under the lender's supervision and control. Such an account is called a “blocked” account. Each day, any excess monies in this account are transferred to a working account which the borrower has the use of. A revised version of this loan procedure (springing dominium) allows the depositing of funds to the borrower's commercial operations account. After deposit, the amount necessary for repayment fees is transferred to the lender or a blocked account.
Each asset-based lender sets rules by which a line of credit can be drawn against by the borrower. For instance, a borrower could be allowed to finance 85% of acceptable accounts receivable and 70% of net orderly liquidating value (NOLV) of company inventory. The lender monitors the borrower's assets and financial performance on a daily basis. Cash flow lending agents, by contrast, would most likely consider a monthly report adequate. Asset-based lines of credit are generally extended to borrowers over a time period lasting from six months to three years or longer.
Asset-based lending is also referred to as asset-based financing or commercial finance. Essentially it is a business loan which is secured by assets as collateral. The established line of credit is typically secured by accounts receivable, inventory, and often various additional “balance-sheet assets.” Such a line of credit is issued mainly for the purpose of meeting short-term financial needs and obligations like increasing inventories, paying for advertising and marketing, and meeting ongoing payroll requirements.
Interest rates on ABLs are lower than those on unsecured lines of credit since the lender has the legal right to take possession of the borrowing company's assets in lieu of repayment of the loan if the borrower defaults on paybacks. The reasonable interest rate, convenience of a revolving credit line, fast funding, and lack of requirement for a strong business track record or stable credit rating make an ABL very attractive to small and mid-sized businesses. ABLs are especially desirable for companies in the business sectors of manufacturing, sales (wholesale and retail), and product distribution. Asset-based lines of credit have proven to be a great benefit to both firmly established and startup companies, particularly during difficult or unstable economic times.
Request a Call back Asset Based Financing Rates Prime +2% & Admin Fee
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