The Capital for Businesses Series # 1 – Asset Based Lending; An Overview



The Capital for Businesses Series # 1 – Asset Based Lending; An Overview
By Barry Wolfe CPA, CVA, MBA
October 19, 2013

Asset Based Lenders (“ABL Lenders”) look to tangible collateral of a business to support or collateralize their loans.  They are more flexible about a client’s cash flow and capital than traditional bank loans and will accept some losses and higher leverage than a bank.  Higher rate (non-bank) ABL lenders can even overlook some (but not all) character flaws.  ABL lenders primary focus is lending against a company’s accounts receivable and inventory; some will take equipment and real estate as additional collateral.

There are many asset classes that banks shy away from for which there are specialized ABL Lenders to meet these needs.  Examples of these are term loans on used equipment that are generally not eligible for leases, revolving lines of credit on inventories, or loans against foreign receivables.

Some ABL Lenders monitor their clients tightly like a factor does, while others only require a monthly borrowing base report. Rates can vary from just 1 percent above a bank to 2-3 percent per month for inventory-only lenders. Many smaller ABL lenders are independent, however most of the larger operations are owned by banks.

The bank-owned ABL Lenders charge lower interest rates, however they use more stringent lending criteria. Some smaller and independent ABL lenders may lend as much as 90 percent against the value of Accounts Receivable while bank-owned ABL Lenders are more likely to loan at 80 percent.  Inventory and Equipment loans have an advance rate of generally 50-80 percent of the Orderly Liquidation Value of the collateral as determined by an appraisal of the collateral by a qualified Inventory and Equipment appraiser.

For further information, please contact Vision Economics or Barry Wolfe directly at 805-217-8278.

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