Asset Based Lending
Traditionally asset based lending institutions placed the emphasis on the value of the collateral and not the financials or creditworthiness of the borrowing company which was called hard asset or hard equity transactions. Because of this type of lending, the typical interest rates and terms were not competitive with the market and asset based lending was for companies that were not profitable and/or experiencing cash flow problems.
Today, we use asset based lending for companies that are cash flowing once you add back the depreciation and amortization to the profit and loss statement, and by doing so can show the ability to service the proposed debt from current earnings.
The typical collateral used for asset-based lending is the following:
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Real estate
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Inventory
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Accounts receivable (90 days current)
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Used Equipment
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New equipment
The percentage of loan to value is typically as follows:
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Real estate………….70 to 75%
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Inventory…………...50%
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Accounts receivable..70 to 80%
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Used equipment…….70%
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New equipment……..100%
Terms for asset based lending.
There is no cookie cutter for asset based lending and each deal is different depending on the story involved and the collateral and guarantees offered.
Asset based lending offers qualified companies, term loans, revolving lines of credit, working capital loans, real estate loans and equipment loans. Typically companies receive a combination of terms in order to match the borrowing to the cash flow of the company. In many cases we can substantially improve the cash flow of the company over the existing debt which also includes paying off the existing debt.