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Asset-based Lenders are normally privately owned financial organizations that have the ability to be more flexible in how they can structure loans. ‘Cash is King’… and an ABL lender understands how to improve cash flow, while providing you with additional capital, liquidity and breathing room.

Traditional bankers like to focus more on structured assets like buildings, land and personal guarantees. The typical ABL borrower may have good credit, average credit or even poor credit. They may be currently generating little or no profitability. They may need to use the ABL loan proceeds to support current payments and obligations while working to increase their sales, reduce their overhead and sell off certain assets. ABL lenders understand these issues and are willing to help you accomplish your goals.

When your traditional banker decides not to extend your credit line or asks you to look for alternative financing, ABL lending may be a good fit for your company. It is somewhat easier to qualify for, as the credit standards are not as stringent. Typical packages are funded within 30 days, for amounts ranging from $500,000 to $50 Million… big companies have challenges also. Terms are normally fixed at 24-36 months. Parts of the ABL loan may be amortized for 10 years, with a 3 year payout. This provides you with greater liquidity, better cash flow and lower monthly payments. Every package is uniquely structured to accommodate your company’s needs. ABL loans can be collateralized with a single asset or a combination of assets; i.e. A/R, M&E, etc.

Typically, your ABL lender is willing to provide a revolving credit line that you can draw down; using the following LTV (loan to value ratios) guidelines:

• Accounts Receivable 75-90% (based on your customer’s quality)
• Inventory (finished or unfinished 70-80% (based on number of turns annually)
• M&E (machinery/equipment) 80-90% (of liquidation value)
• Intangibles (Rolling stock, tools, etc) 80-90% (of liquidation value)
• Intellectual Property (patents) 70-90% (of appraised value)

Once your lender agrees to make the loan, he will issue a ‘TERM SHEET’. This is evidence of his willingness to complete the loan. You should be aware of certain expenses and fees connected with ABL credit facilities. Like you bank, an appraisal of your qualified assets needs to be completed; A/R, Inventory, M&E, etc.

Appraisal fees should be paid to the lender only, never to your ABL consultant. Your consultant is also entitled to compensation for finding and securing the right lender for your needs. His fees are normally 2-3 points of the total credit facility, depending upon the size of the loan. Never pay an advanced fee to your consultant… MAKE THEM PERFORM FIRST.

In closing, ABL lending can be very helpful during difficult financial times. Once your new ABL credit facility is in place, you will have the additional liquidity and cash flow you need to run your business, without interrupting your day-to-day operations… and you can still use your favorite bank for a depository relationship. ABL financing can also be used for special growth projects that require additional capital.

Finding the right ABL lender that is willing to fund your needs can be time consuming and somewhat frustrating; particularly if you not thoroughly familiar with how the process works. Even thought your lender understands what you need, you may need assistance in understanding critical issues related to your loan. Considering that your time is always important, be sure to select a highly qualified ABL consultant. They should understand every aspect of the process, what you will need to qualify and also be willing to act quickly and efficiently. They should also have a firm grasp of which ABL lenders like the industry you represent and more importantly, which ones are currently lending.

Allen C. Jones, Ph.D., Managing Partner
Essex Capital Partners, LLc
http://EssexCP.com