Hiring continues to lag as manufacturing firms struggle to overcome tight money supplies in the business lending environment. A lack of working capital may be to blame for the generally sluggish recovery in this critical sector of the U.S. economy.
As traditional lending arrangements continue to remain in short supply for most smaller manufacturing firms, alternative lenders are becoming a more popular solution for these small businesses. Alternative asset-based lending institutions do not depend upon the typical underwriting strategies to determine eligibility. Instead, they look at the value of available collateral and make a determination based on a variety of factors that include the following:
• The ability to pay of the companies responsible for accounts receivable and invoice amounts
• The creditworthiness of these client companies
• The cash value of outstanding invoices and accounts receivable
The application for these asset-based loans typically requires only basic documentation from the borrower that includes the following information:
• An accounts receivable aging report
• A full customer list
• A copy of the company's licenses and incorporation articles
• Invoices for any accounts receivable to used as collateral
In many cases, only a few pages of information are required from the prospective borrower to be considered for an accounts receivable loan or line of credit.
Accounts Receivable lending can be especially useful for smaller manufacturers who operate on a small profit margin and may frequently experience cash flow shortfalls. Because invoice loans are collateralized using resources already earned by the manufacturing firm, they present much lower risks to the lending company than comparable unsecured loans. This increases the likelihood of approval for companies with accumulated invoices from reputable clients and minimizes the importance of credit histories and current financials to a significant degree. Companies that offer invoice loans and lines of credit typically offer rapid decisions on these lending arrangements and quick funding to help manufacturers weather cash flow crises and continue operations in the competitive marketplace.
Smaller manufacturing firms that have sizable invoices outstanding with reliable customers can apply for loans using these financial documents as collateral and backing. Asset-based lenders will evaluate these accounts receivable to determine their market value. If the loan is approved, the lending institution will offer a substantial percentage of the value of these outstanding invoices as an immediate loan. When the invoice amounts are paid, the lender collects its principal, interest and fees and remits any remaining funds to the borrower. In effect, invoice loans serve as cash advances on future payments to provide added financial flexibility for the manufacturing industry.
Companies that include 1st Commercial Credit specialize in asset-based lending solutions. Invoice loans and purchase order funding arrangements are ideal solutions for many small manufacturers struggling to obtain the working capital they need in today's tight money marketplace. By taking advantage of these alternative lending arrangements, manufacturers can participate in the current economic recovery and begin planning strategies for future growth.