Asset Based Financing

Asset based business lending (ABL) is a types of commercial financing in which funds are provided after they are secured with assets on a company’s balance sheet. Such asset based deal collateral may be accounts receivable, commercial real estate, equipment or other business assets. Asset based lending usually comes in two types of facilities: term deals and lines of credit, but are also available in other forms like factoring, merchant cash advances and ACH financing. Factoring, cash advances and ACH and MCA financing aren’t true deals but are, instead, the sale of future earnings for an upfront cash payment. There are a number of asset based lenders with different collateral criteria and leverage. While some asset based lenders like to lend against a company’s accounts receivables, other lenders like to fund using a ratio of a hard assets worth (commercial real estate, personal real estate, land, equipment and machinery) or even against a firm’s inventory. Asset based business deals are especially useful for company’s that may have credit scores too low for traditional bank financing, don’t have sufficient cash-flow for bank-rate deals, or already have a traditional or SBA deal in-place. Asset based business financing is used as a 2nd position deal, or even used to consolidate other higher-interest business debt.

The main advantage of asset based business financing is the ability to monetize a company’s balance sheet to obtain financing that otherwise wouldn’t be available. But, because asset based lenders don’t necessarily require the best cash-flow and credit requirements to approve and fund, they take a higher risk than traditional lenders. Even though the ABL lender has secured the deal with the company’s assets, the process of selling off the asset can lead to losses for the funding company. Disadvantages associated asset based lending generally are the fact that they are more expensive than traditional financing (because of increased risk) loss of control of assets, and covenants associated with the asset based facility and higher fees (due to title searches, appraisals, and collateral monitoring fees.

Types of Asset Based Financing

Differing kinds of collateral that may be pledged with asset based lending

  • Account Receivables
  • Inventory
  • Invoices
  • Commercial real estate
  • Investment real estate
  • Personal real estate
  • Land
  • Equipment and Machinery
  • Bank Accounts
  • Credit Card Processing Account

Details

  • Rates: 8-25%
  • Terms: 6 months - 3 years
  • Funding time: 3 - 21 days
  • Repayments: daily, weekly & monthly
  • Appraisals needed: yes

Documents

  • Credit application
  • Bank statements
  • Business tax returns
  • List of collateral
  • Appraisals

Pros

  • High approval rates
  • Easy access to funding
  • Good credit is not required
  • Fluctuating cash-flow is OK
  • Up to 90% deal-to-value

Cons

  • Higher rates than traditional financing
  • May have strict convenents and use-of-funds
  • Collateral may require monitering
  • Higher fees than most business deals
  • Lots of Documentation Needed

Business Financing Apply

Approval Rates

CASH ADVANCE LENDERS
%
LARGE BANKS
%
TRADITIONAL BANKS
%
ALTERNATIVE LENDERS
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