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Asset-Based Lending.  Financing Accounts, Inventory and Equipment


Asset-Based Lending and Factoring Brokers
Sourcing Asset-Based Lending (ABL) clients to industry lenders is a highly product area for both new and seasoned factoring brokers.  Asset-Based Lending (ABL) can provide manufacturers and distributors with one-stop shopping for much of their financing needs.  Unlike financial statement lending and credit score lending as practiced by much of the banking community, asset-based lending focuses heavily on the collateral (and liquidation value) of accounts receivable, inventory, and equipment.  Almost all independent factoring brokers also focus heavily on this highly productive area.

How It Works
Similar to factoring, asset-based lenders will typically create a loan based on 75-80% of the face value of accounts receivable.  Unlike factoring, this "borrowing base" will also include an amount for inventory (perhaps 50%) as well as equipment (perhaps 75% of estimated liquidation value.  The borrower tenders invoices or sales reports each week which are used to calculate the current borrowing base and the lender advances funds for replenishment of inventory and, in some cases, purchase orders.

Who Can Use Asset-Based Lending?
Unlike factoring which is available to even the newest startup company, asset-based lending requires that a business has at least some operating history.  Whereas most factors don't base their financing decisions on credit history, asset-based lenders require financials that will support repayment of their loan.  To be put simply, asset-based lenders fill the void between factoring and traditional bank term loans and especially when inventory (which is not a consideration in factoring) is involved.  Asset-based credit facilities tend to be slightly larger than factoring with $500,000 and up being the norm.   When seeking asset-based lending, the borrower should...

  • be able to provided business financials (preferably audited).

  • have at least a 3 year credit history.

  • seeking at least $500,000 in financing.

  • be prepared for periodic audits of inventory and accounts by the lender.  

Benefits of Asset-Based Lending
Asset-based lending provides a one-stop shop in financing for manufacturers and distributors.  Fees and interest rates for asset-based revolving lines of credit are slightly less than factoring and slightly higher than typical bank term loans.  Asset-based lenders, however, tend to be more accommodating and flexible than banks in their financing methodology and often will supply funds for purchase orders and international trades as well as domestic.

For Industry Brokers:  FactorMax Guerrilla provides a database of hundreds of broker-friendly asset based lenders to assist you in closing your deals.  At DMS Wholesale, we maintain an active database of some of the nation's largest providers of asset-based finance and assist our new brokers in placing such non-factoring finance transactions.
 

International Association of Commercial Finance Brokers
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