During economic downturns, businesses with inventory have used asset-based lending to stimulate their recovery. More traditional corporate loans depend on demonstrating superb cash flow. However, standard borrowing structures are out of reach for many businesses due to a reduction in demand, issues in the supply chain, and unforeseen events which can damper cash flow.
Asset-based loans are typically offered as revolving lines of credit, secured by equipment and corporate assets such as accounts receivable, inventory, and other fixed assets. These assets, oftentimes equipment, are analyzed and evaluated via field examinations and appraisals to establish appropriate advance rates on these assets, which provide a level of reduced risk for lenders.
The turnaround time is generally quicker for asset-based clients than with traditional loans. When problematic issues or unforeseen events arise, asset-based loans are easier to access than traditional loans.
The COVID-19 pandemic has made asset-based loans more popular than ever. Companies that need to generate working capital and drive growth are using asset-based loans to strengthen their futures.
Here are a few of the advantages to consider:
- Flexible Terms: Asset-based loans generally call for fewer financial covenants than traditional cash-flow structured loans. Asset-based loans also allow the receiver more latitude on where to use funding versus a traditional cash-flow based structure. Asset-based lending is scalable: as your company’s sales and profits grow, your assets will grow, thus making it easier to apply for an increase in the amount of your line.
- Easier to qualify: Asset-based loans pose less risk for the lender given the evaluation of the collateral and the structure established to lend. As a result, there is less focus on traditional balance sheet evaluation.
- Improved Liquidity: Improved liquidity is a massive benefit that your company gets from using asset-based financing. Asset-based lending provides the company with reserves and, if monitored appropriately, predictable cash flow. Asset-based lending is a stabilizer for companies with fast growth, seasonal operations, or stretched cash flows.
Loeb Term Solutions specializes in working with banking and other financial institutions whose clients no longer meet standard covenants and need cash or restructuring debt. Our ability to lend directly on the collateral value of the assets (equipment) and not financials allows for a greater opportunity to unlock cash equity. Loeb does not have covenants.
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For five generations, since 1880, Loeb has been a trusted provider of reliable equipment and related appraisal and auction services that help manufacturing and financial companies leverage their industrial assets.