Asset Based Lending

What is an Asset-Based Loan?

In the lending industry, an asset-based loan (ABL) or line of credit is secured by certain types of collateral. These types of loans are frequently used by small and mid-sized companies to satisfy their short-term cash flow needs. (Also known as a “working capital” line of credit)?They may use the loan to purchase inventory, pay suppliers, or to cover expenses such as payroll and rent.

What is an Asset-Based Loan?

With asset-based lending, collateral (assets that have a certain value) is used to secure the loan, in addition to the company’s commitment to pay on the loan agreement. If the borrower defaults on their payments, the lender has the right to sell these assets in order to be paid back. This provides businesses with an incentive to stay current on their loan payments, and it reduces the risk for banks and other lending institutions. For businesses, collateral can be tangible or intangible.

Tangible assets include:

Accounts receivable (the most common)

Inventory

Equipment

Buildings

Vehicles

Land

Intangible assets include:

Purchase orders

Investment funding, securities

Payment rights

Copyrights and trademarks

Typically, the value of the collateral will exceed the amount of the loan and will include the lender’s full costs if they must seize and liquidate the assets. Liquid assets, such as accounts receivable and inventory, are preferred by lenders as they’re easier to convert to cash. With accounts receivable, a company can usually borrow on 70-85% of the value of their eligible collateral. With assets like inventory or equipment, it may be 50% or less.

Asset-based lending can be a revolving line of credit or an asset-based term loan that amortizes over a period of time, with principal and interest paid monthly.

Who Uses Asset-Based Lending?

Companies that use asset-based lending are typically those in need of a cash infusion for daily operations or to advance to the next level. An ABL is attractive to companies that are growing quickly but don’t have the necessary funds to take that next step. This type of loan bridges the cashflow gap so that they can grow.

What is the Cost of an ABL?

ABL loans are usually priced according to the amount of the loan, the type of collateral used and the risk level. Most use an annual percentage rate (APR) of between 7% and 17%, and there may be additional fees for origination and administration. At Capital Biz Solutions we are able to provide very strategic options in structuring your ABL loan. Please visit us on the web athttps://www.capitalbizsolutions.com/or simply call us at 508 864 7758. We will discuss the parameters of your ABL loan request to ensure it is the proper loan facility to enhance your business growth. #ABLLending #WCLOC #TermLoan #CapitalBizSolutions.