Even during these tough economic times, there are still companies that are experiencing Accelerated Growth. The reason being… many of their competition are closing their doors, leaving a larger share of the pie. Unfortunately, commercial bankers are finding it difficult to extend additional credit to these high quality, growth companies. Without the additional liquidity, these companies cannot take advantage of the opportunity.

I wanted to take a moment to advise our commercial business clients that additional funding is available for high growth companies… to help keep their  companies running smoothly, during these tough economic times.

Invoice Financing or Accounts Receivable Financing is a simple, fast and effective alternative that will help you digest accelerated growth. It will cut your collection time from 30+ days to 48 hours. The cost is very low and the new credit facility only takes 7-10 days to put into place.

This type of financial instrument can be used in conjunction with your current banking relationship or as a stand-alone. To learn more about the alternative financing opportunity, please click this video link.

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

A serious problem continues to develop, whereby small manufacturing, distribution and service companies are being advised by their commercial bankers that their credit lines are being curtailed, reduced or in some cases cancelled. You may even be in the process of finding a new banker.

Over the past 12 months, we are witnessing a number of U.S. banks struggling to stay afloat. The largest of them are typically rescued by the FED. Their demise is considered to risky for the health of financial system… we don’t entirely agree.

On the other hand, when a Commercial or Community bank experiences financial hiccups, the Fed approaches the situation from a different perspective, because they don’t believe that their failure would cause any serious financial havoc.

Your business has seen good times and rough times. Due to current economic conditions, you may have experienced a downturn in revenues. Your banker has always stood with you in the past… so what’s different now? What’s making him nervous about his credit exposure? Could your bank be having problems that have nothing to do with your business?

Let me explain… when a bank’s liquidity level falls below FED guidelines, (7%) they are instructed to raise additional capital in order to shore up their balance sheet. If they don’t, the FED will step in and take control. Either someone can write a check to add liquidity, or the bank can start reducing their exposure by reducing their customer’s credit facilities and outstanding loans. In short, money gets tight. If the bank is successful, they will have dodged a bullet. In the process, your business may get squeezed, affecting your ongoing operations.

Additionally, if you are not able to secure new credit lines with a different banker, you will need to consider alternative financing… Asset Based Lending (ABL). The rates are a few points higher, but you will have the liquidity to continue operating and growing your business.

See your bank’s current financial condition at http://www3.ambest.com/banks/ and follow these simple steps:

1. Insert your banks name in the search window and click find

2. Click on their bank’s name

3. Click on your bank’s ‘Statement Report’ and their ‘Ratio Report’… always interesting.

Please understand that 2009 is going to be a difficult year for small businesses. Be sure that your relationship with your bank is sound… and more importantly, that your bank is in strong financial condition. Remember… ‘Be in control of your capital’.

To learn more about Asset Based Lending, please see www.EssexCP.com. or go to http://en.wikipedia.org/wiki/Asset_Based_Lending. You can also give us a courtesy call with any questions you may have.

Allen C. Jones, Ph.D.

Managing Partner
Essex Capital Partners, LLC
www.EssexCP.com

When your banker becomes uncomfortable with your relationship, it’s time to take a close look at Asset Based lending. Yes, it costs a few percentage points over bank financing, but it also provides the liquidity you need to keep your business running. Every year, tens of thousands of company’s nationwide use ABL financing to keep their payrolls met… without interruption.

Essex Capital Partners understands that “Time is of the Essence”. We focus on providing additional liquidity, quickly and efficiently. With 30+ years of experience in Turnaround and Crisis management, we understand the needs of manufacturers, distributors and service companies.

An efficient decision making process allows us to move quickly. New credit facilities are typically completed within 30 days from receipt of a signed client agreement. An ABL credit facility is secured by your company’s Accounts Receivable, Inventory, Machinery and Equipment and intangibles. As always, you can draw down only the dollars that you need… when you need it.

Essex Capital Partners DOES NOT TAKE ADVANCE FEES. Our fees, normally 2-3% of the total value of your new credit facility, are paid at the closing table. This assures the borrower that we are going to work quickly and efficiently to complete their deal.