Asset Based Lending

Get access to revolving funds when you need it most

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Loan Amounts

Up to $100,000,000




Starting at 5.25%


Less than 30 days
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What is Asset Based Lending?

Asset-based lending is a financing solution that uses your company’s assets as collateral to secure the loan. These assets determine the value of your loan rather than the typical cash flow and credit. To qualify for asset-based lending, you can use accounts receivable, inventory, purchase orders, commercial real estate, equipment and machinery, intellectual property, and marketable securities as collateral.

The more liquid your assets are, the higher your loan-to-value ratio is. Lenders prefer assets like accounts receivables and purchase orders because they can easily convert them into cash compared to equipment and properties. While lenders still accept nonliquid assets, you’ll likely receive lower loan amounts and higher interest rates.

Asset-based lending is an excellent option for businesses with valuable assets but don’t have enough credit rating or cash flow to qualify for unsecured financing. You can use the funds from your asset-based loan for almost any business purpose, including hiring and training, equipment purchases, and day-to-day expenses.

Use your business assets for working capital

Unlock tied up equity

Increase your line of credit

Borrow against your assets

Improve your balance sheet

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Asset-Based loan types

What are the different types of Asset-Based Lending?

different types of Asset-Based

There are two main types of assed backed loans, an asset-based line of credit and an asset-based term loan. Asset-based line of credits are structured as revolving credit lines that utilize the underlying collateral to provide financing. Some collateral that is used has a fixed value such as machinery and equipment, while others are constantly churning, such as inventory and receivables. Having a fixed collateral value on machinery and equipment will give a constant amount of liquidity on the revolving line of credit while the churn of both inventory and accounts receivable will provide a varying amount of liquidity. When more inventory is purchased, and new sales are made, the collateral value increases which will result in more capital being available on the revolving credit line.

Asset backed term loans use the same collateral as an asset-based line of credit, but instead of the facility being a revolving credit line, it is structured as a term loan. The term loan can amortize over a period of 1 to 5 years with monthly principal and interest payments. By utilizing collateral that has a fixed value, such as real estate, machinery, and equipment, we are able to provide high loan to values with low monthly loan payments.

use of Asset-Based Loan

Why would a business use an Asset-Based Loan?

There are a variety of reasons why a business would use an Asset Based Loan. Some of those reasons include;

Refinancing existing debt to improve cashflow

Raising capital to expand the business and purchase inventory

Business cashflow alone won’t support a loan and the bank needs additional comfort

Raising capital for business acquisitions

Pledging collateral can replace the need for a personal guarantee

The 5 reasons above are just a few of the reasons why a business would use an Asset Based Loan. Overall the purpose of an Asset Based Loan is to turn the assets on your balance sheet into cash to use in other areas of the business.

Rapidly Growing Company – Companies that are growing at a high rate are always constrained by the capital that’s available to them. High growth means more sales, and more sales means more invoices. With invoices or A/R being the primary asset used in asset-based financing, the more a company sells, the more invoices are created, and the more A/R there is for an asset-based lender to lend against. With more sales also comes the need to purchase new equipment, machinery, and inventory, all of which are collateral that can be used by an asset-based lender.

Stable Company – A stable business can still see a tremendous benefit from restructuring debt into an asset-based loan. Often times stable companies have traditional or conventional loans which have low interest rates, but tend to offer limited liquidity and can actually restrict the growth of the company. By using an asset-based loan the company can leverage inventory, equipment, and A/R that might not be encumbered by their existing conventional loan program.

Distressed Company – When a business is experiencing hardship and doesn’t have the cashflow to support traditional loan programs, an asset-based loan is a perfect option. Utilizing an asset-based line of credit that requires interest only payments has a positive impact on the company’s cashflows. Distressed companies with historically tight cashflows have a hard time servicing both principle and interest payments, which is why an interest only ABL revolver is a beneficial solution.

Asset-Based collateral

What type of collateral is used for Asset-Based Lending?

collateral type use

Asset-backed loans enable companies to utilize a variety of collateral options for security. Although there is a long list of collateral options that can be used, there are some that are weighted more heavily than others.

Accounts Receivable (A/R) – Once services have been rendered and a sale is official, an invoice is created and sent to customers. For a majority of asset loans the invoices of a business are the primary asset that secures the asset-based line of credit or asset backed term loan. The LTV or loan to value can range, but average advance rates are 90% of the invoice amount. There are numerous items that affect the advance rate on an invoice. Some of these variables are the time it takes a customer to pay, payment terms that product is sold on, credit strength of each customer, and the concentration or diversification of your customer base.

Inventory – Inventory is a core asset that can be used when looking to collateralize an asset based loan. It’s common that business owners will value inventory at retail, but any asset based lender will look to understand what they can sell inventory for in the event of a default. The advance rate on inventory ranges depending on a variety of factors. Some of those factors include the location of where inventory is stored, the type of goods, and how easily inventory can be sold if needed. It’s also important for companies to have a perpetual inventory system to monitor inventory levels.

Purchase Orders – A common asset used in asset backed finance are purchase orders or PO’s. When a customer places an order they issue a PO which outlines the order. The purchase order will show the order date, when goods are to be shipped, the quantity, price per unit, etc… When a PO is received by a seller an asset based lender will review the terms to understand who the customer is, the credit worthiness, and the value of the PO. The loan to value for purchase order financing ranges between thirty to forty percent and as soon as the goods are shipped and an invoice is created, the additional availability will be released.

Machinery and Equipment – Considered a hard asset, machinery and equipment are favorable assets for assed-based lenders. By taking the make, model, year, and the condition of the equipment a lender will have the ability to assign a value to the equipment. The typical advance rates or LTV assigned to equipment and machinery is 60% of the FLV or forced liquidation value. This means that the lender will provide availability based on what they would be able to sell the equipment for in the event of a default.

Commercial Real Estate – Although commercial real estate or CRE is a hard asset and a great form of collateral, it’s not as liquid as equipment, A/R, or inventory. In most cases CRE will be used as an additional asset to provide added liquidity on an asset-based facility, rather than the primary asset used to secure the loan. For example, if you were looking to borrow $5,000,000 from an asset-based lender and only had enough A/R and Inventory to get to $4,000,000, an asset-based lender would look towards your commercial real estate as collateral to provide you with the additional $1,000,000 of availability.

Marketable Securities – Although not a core asset for asset based lending, marketable securities can be used as boot collateral. Securities are often highly liquid and provide lenders with collateral that can easily liquidated. Some examples are bonds. certificates of deposits (CD), or publicly traded stocks. Advance rates range depending on the strength of the security and can be anywhere from 50% to 95% of market value.

Intellectual Property – IP is another asset that can be used in a borrowing base calculation but is very seldom used as standalone collateral. Since IP is an intangible asset, it’s very difficult to truly assign value to it, which means it can be used to help an asset-based lender provide a marginal increase of liquidity, but will never make up a substantial portion of the collateral base.

What are Asset-Based Lending rates?

There are a variety of different asset-based lending companies, all of which have different structures, credit criteria, and rates. Rates for an asset-based loan can range from 5.25% to 15% and can be structured as an asset backed line of credit or an asset-based term loan. Below is a list of factors that can affect your rate.
Asset-Based Lending rates

The quality and size of your clients.

Previous payment history with your clients

The frequency at which your inventory churns

The profitability of your business

The age and quality of your machinery and equipment

Length of payment terms with your clients – 30, 60, or 90 days

Your business credit score and vendor payment history

Property value based on recent appraisal

What documents are needed to get approved for an Asset-Based Loan?

Property value based on recent appraisal

Balance Sheet

A/R and A/P Aging Report

Business Tax Returns

Debt Schedule

Inventory Report

best industries for Asset Based Loans

What are the best industries for Asset Based Loans?

Asset Based Loans are generally best for business to business (b2b) industries. The reason this is the case is because B2B industries tend to have significantly more collateral than business to consumer (b2c) industries. For example, a manufacturer will have equipment, accounts receivables, and inventory/materials, while a restaurant will only have furniture, fixtures, and equipment.

How does the Asset Based Loan process work?

The application process to apply for an Asset Based Loan is paperwork intensive and requires a business owner to have all of his/her financial information organized. Outside of the standard documentation an Asset Based Loan is going to require a detailed asset list so a lender can understand the collateral that’s available to them.

Case Study #1

One of our clients is a manufacturing company in the midwest that went from stable growth at 5-7% a year to a 20% growth rate. Initially, they were financed with a line of credit from their bank, but as they grew at a faster rate the bank became uncomfortable extending additional credit. In order to keep up with the growth they needed a larger credit facility and an asset based loan was a perfect fit. Due to the nature of the business, their balance sheet had assets with equity that could be unlocked with an asset based line of credit. By using the accounts receivable, inventory, and equipment we were able to double the credit facility that the bank was offering to provide the growth capital our client needed. As they continue to grow, their asset base will continue to grow, and our facility will grow with them!

Case Study #2

Our client is a wholesaler based in the southeast that was paying an absorbent amount of monthly principal and interest payments. Between equipment, working capital loans, and personal notes, the cashflow was being drained out of the business. We structured an interest only asset based loan which used the accounts receivable and inventory as collateral. The monthly debt service was reduced by over 200%. The complete restructure of their balance sheet turned a business with stressed cashflows to a healthy operating company positioned for growth.

FAQ About Asset Based Lending

What is asset based lending?

An asset-based loan uses collateral rather then a businesses cash flow and credit to provide financing. Its common for businesses to use their existing assets to secure additional capital and operate efficiently.

How do you qualify for asset based lending?

To qualify for an asset based loan you must have some sort of asset that can be borrowed against. Some common examples include inventory, equipment, receivables, and real estate.

How long does the application process take for asset based lending?

The length of the application process for an asset-based loan varies depending on the type of asset. For example borrowing against accounts receivables is less time intensive then borrowing against real estate or equipment.

How would you use asset based lending?

Businesses use asset based lending for an array of reasons including expansion and inventory purchases. Asset based lending is also used to improve cash flow and refinance existing debt,

Is collateral required for asset based lending?

There is always some sort of collateral required for an asset-based loan. Some of the most common types of collateral include real estate, equipment, and accounts receivables.

What are the different assets based lending options?

There a few different options when considering asset based lending. The two most common forms are asset based term loans and asset based lines of credit.

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