Asset based financing enables your company to capitalize its assets. It provides you with immediate funds which can be used to cover operational expenses, finance new purchase orders, or make strategic investments. Asset based loans are an ideal alternative for small and middle-market companies who need a flexible financing solution.
Our solutions are provided using a revolving line of credit structure. They allow your company to draw on a percentage of the value of your assets, as needed. The line gets paid back as the assets convert into cash, through sales.
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How does asset based financing work?
Most Asset backed lending facilities operate like a revolving line of credit that is secured by specific collateral. The collateral is used to determine a borrowing base – the amount of funding that you can obtain. The line allows you to withdraw funds as you need them, based on the value of the assets in the borrowing base. The line is paid back as the assets are converted in to cash, through your normal operations.
The borrowing base is determined as a percentage of the value of the collateral that has been pledged. Usually, companies can finance 75% – 85% of the value of their commercial accounts receivable. The borrowing base of inventory and equipment is often 50% or less. In general, the actual percentages depend on the quality of the assets and how liquid they are. The borrowing base usually changes regularly as assets – namely, accounts receivable – fluctuate.
Qualifying for an asset based lending facility is easier than qualifying for comparable solutions, such as lines of credit. In most cases, we can provide an underwriting decision quickly and funding shortly thereafter. Qualification criteria include:
Minimum monthly line requirement of $1M
A solid client base
Accounts receivable must be free of liens, or an existing lender must be willing to subordinate its position
Other assets to use as collateral, as required
Company must be up to date on taxes or working on a plan with tax authorities
Must be profitable or have a turnaround plan in place
Note that this list is not all-inclusive. To find out if we are the right solution for you,
Choose the right asset based lender
The decision to use an asset based financing solution for your company is strategic and should be made carefully. The right financing partner can be critical in helping you achieve your corporate objectives. Consider asking the following questions as part of your due diligence process: