ASSET BASED LENDING

Asset-based lending; as●set (as’et-‘bast), n. commonly defined as making loans where collateral substitutes for a partial lack of credit worthiness.

Asset-based financing is unlike traditional bank loans. Banks can only lend under strict balance sheet, income statements ratios and trend percentages. This is due to restrictions dictated by Federal and State government regulators. Asset-based financing focuses on the collateral, management, future outlook and other resources available to the company.  It provides immediate access to cash that has been previously tied up in non liquid-assets. This type of financing can provide an overall credit facility or a single line of credit.

 

Asset based loans are typically secured by the following types of collateral:

  • Accounts Receivable
  • Inventories
  • Machinery and Equipment
  • Real Estate
  • Certain Intangibles 

 

Borrower profiles range from small to middle market sized companies. These include manufacturers, service providers, technology companies, wholesalers and retailers. Companies that are unable to obtain or are restricted by conventional bank financing

 

Companies that may benefit from asset-based financing typically face the following challenges:

  • Rapid growth
  • Turnaround
  • High leverage
  • Short operating history
  • Buyouts of shareholders
  • Restricted by bank covenants

 

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