2013 Asset Based Lending | Inventory Finance + Accounts Receivable Finance

When you a combine a high advance rate on A/R (85%-90%) with an aggressive advance rate on inventory (65%) the results are the ideal line of credit for maximizing our client’s access to growth capital.
When you a combine a high advance rate on A/R (85%-90%) with an aggressive advance rate on inventory (65%) the results are the ideal line of credit for maximizing our client’s access to growth capital.

65% inventory advances for our clients along with a high advance rate on A/R (85%-90%)


Let’s delve into the basics of asset-based lending. Asset-based lenders, as the name suggests, make loans based on assets, usually inventory and accounts receivable. You are sticking the revenue that you are going to make in the future out there, and putting it at risk, to get some access to quick cash.


Asset-based lenders will give you their funds in correspondence with an agreed percentage amount of the value of the secured assets. Asset-based loans are sometimes called secured loans, because they are secured by collateral. The percentage of the value is usually between 70-80% of the receivables that are eligible and 50% of the finished inventory that is eligible.


How do you get asset-based loans though? The number of financial service businesses that give asset-backed loans is significant. There are a number of banks and independent financial businesses that offer it.


For a little business, the solution is to locate the lending companies that are fine with giving credit lines to smaller companies. This can be a little difficult, and it could involve a lot of questioning on your part. Asset-based lenders usually want to make bigger loans because the price of upkeep of an asset-based loan is going to be the same – whether the loan is small or big.


Still, getting any kind of asset-based loan ought to be pretty simple if your business has sound financial statements, great reporting programs, frequently transacted inventory, and, furthermore, clients who have a great history of paying bills on time.


To get an asset-based loan, you are going to need to have a lot of financial information that is accurate and detailed. The most important thing is to get the lender feeling good with a real case for long-term viability, as well as some financial statements that are professionally-prepared that will show proof that you have a great grip on the business.


What is the advantage of an asset-based loan? Asset-based loans can be a vital capital source for companies that are growing really quickly. Companies that are leveraged highly, in the middle of a turnaround, or have too little capital, can all benefit from asset-based loans. Sometimes, a company just needs a cash infusion to handle a financial problem, or something that would cause it to stall out and quit.


What is the disadvantage of an asset-based loan? The possibilities of getting a line of credit are just as good as the receivables quality that your company has. Commercial lenders will at your clients to pick the ones that pay in under two months or have a great credit rating. They may not look as sales to small businesses or individuals as receivables that are eligible.


Asset-based loans can also cost more than classic loans. Interest rates will fluctuate widely, and banks will often include further due diligence and “audit” fees to the final cost of the loan. Bigger banks may also necessitate that you make a personal promise, as well as the assumption of more banking relationships.


Thinking about asset-based loans for your company? Click Here


Asset based lending Lines of Credit

asset based lending credit lines
asset based lenders look at the collateral’s quality instead of the credit ratings. Borrowers pledge all sorts of things like equipment, inventory, and receivables.

Asset based lending is just lending that’s guaranteed by some kind of asset. If the loan is never paid back, the asset gets taken away. A mortgage is a kind of asset based lending, in a way. However, much more commonly, the terminology is used in conjunction with lending to big corporations or businesses that use assets that traditionally aren’t used in other kinds of loans. Think of it like one group giving money to another group, and if that group doesn’t pay it back, the lending group takes some of the possessions from the group they lent to.

Companies often have a lot of assets, and asset based lending takes advantage of this to make secured loans. They might loan a lot of money because they are guaranteed to get the assets of the company, if that company doesn’t pay up. These loans are often tied equipment, machinery, accounts receivable, or inventory.

This kind of lending is used most often when the company wasn’t able to get capital in the traditional way, like raising funds. They might have been unable to raise funds in the normal marketplace. They might need a big surge of immediate capital for something like debt purchasing, mergers and acquisitions, or inventory purchases.

A line of credit that is asset based is often made for the same reason that a normal line of business credit is designed, and that’s to let the company bridge the gap between the cash-flow timing and its expenses. The main timing issue focuses on what are known as accounts receivables. That is the delay between doing a transaction with a person, and getting payment for it.

Businesses can sometimes look through the different asset  based lending companies according to what their lending rates, whether or not they have international A/R experts, what their inventory advance rates are, and their A+ BBB rating. It’s important to choose companies that have excellent ratings across the board, in all areas, because there’s not reason not to with so many choices out there. Basically, it comes down to the rate of capital at the interest rate you get. Plus, an intimate knowledge of the pricing and underwriting criteria of asset based lenders also helps.

Asset based lending used to be considered the last resort when it came to getting financing for your business, but it’s now seen as more and more common for businesses that either lack the track record or credit to get the kind of financing that has been seen as traditional.

In general, asset based lenders look at the collateral’s quality instead of the credit ratings. Borrowers pledge all sorts of things like equipment, inventory, and receivables. Banks are often constrained in giving this kind of lending.

Banks not ever accept transactions that have higher debt-to-worth rations than five to one. Asset based lending companies that are not banks or who are separate entities don’t have to deal with constraints like that.

Interested in obtaining an Asset based lending Lines of Credit? Click here

Advantages of Invoice Factoring

New startup companies quickly realize that purchasers often do not pay invoices on time which in turn creates cash flow issues for the company. Late payment from buyers means the company will now default on its own payment of bills, pay rolls and to its suppliers. While many like to opt for bank loans to mitigate the effects of late payments by customers, you should know that you have a far easier solution available.

Simply Sell Your Invoices!

That’s right, “factoring companies” are businesses which are built around the idea of helping other businesses tackle payments due on their invoices to their customers. A factoring company will simply purchase your invoices from you at a discounted rate, typically 80% to 95% of their original value and then collect payments your customers.

Typically a factoring company after it has purchased your invoices will pay you the very next day so you will have cash readily available for you to pursue your goals of building your company. This of course has a multitude of advantages to offer.

  1. 1.       No need for bank loans: Most businesses due to myopia tend to stick to bank loans for financing their companies; asset based funding such as invoice factoring can fuel your growth simply by the demand for your product/service.
  2. 2.       Have Cash In Hand Immediately: Get cash quickly from your receivables; no waiting at all. Such a method can greatly aid you in building your company, hiring more staff and creating more products or improving your services.
  3. 3.       Collection Assistance: Let a third party see to the issues of tackling your customers while you focus on your company’s day to day management. A factoring company can handle your accounts receivable perpetually meaning you will have less to worry about even in the long run.
  4. 4.       Build A Healthy Credit: With an account receivable financing system such as invoice factoring on your side you can pay your bills in a timely fashion thereby maintaining a good credit score. This in turn will allow you to get better terms with your suppliers.
  5. 5.       Pay Your Bills and Staff on Time: When you get paid on time, your staff and suppliers get paid on time. Clear out your bills, and pay out your staff when expected and maintain a good healthy working atmosphere in your office.

Invoice factoring can help you in building a better business model for your company. While before, an accounts receivable type of system such as this was considered as an end game solution where a company went when it was in dire straits, today, smart businessmen and women are opting for it in order to mitigate lost time and business opportunities. By letting a factoring company tackle your accounts receivables you are effectively freeing yourself from the need to spend time calling customers while also maintaining a healthy cash flow in to your business.

Many businesses are also opting for invoice factoring as they consider it to be a more favorable way of raising working capital as compare to bank drafts. The system is a more efficient method of managing finances and gives businessmen a lot more flexibility so consider opting for it.


Invoice Factoring Vs Bank Loans

Invoice factoring is a form of asset based financing in which a company uses the money that its customers owe as collateral for a financing agreement.
Invoice factoring is a form of asset based financing in which a company uses the money that its customers owe as collateral for a financing agreement.

Maintaining a good health cash flow is the primary priority in any business. However doing so is more easily said than done and companies which are by all appearances doing really well financially can get into a fix. Many businesses which are looking for ways to fund their growth, pay off their bills and tackle their payrolls typically narrow down their options to financing by banks, however there is another option that they can consider – Invoice factoring.

What is Invoice Factoring?

Invoice factoring is a form of asset based financing in which a company uses the money that its customers owe as collateral for a financing agreement. When opting for Invoice factoring, the business will sell its invoices due to a factoring company at a discounted rate which will then collect the money from its customers and forward any due balances less charges back to the business. Know that the older the receivables are, the less their value becomes.

Is Invoice Factoring A Kind Of A Loan?

No, Invoice factoring is not a loan; it is a financial transaction between a business which is seeking funds and a factoring company. Since the factoring company will purchase the invoices, the business selling the invoices has immediate cash flow which it can then invest. Invoice factoring is a kind of a no-loan solution which is driven primarily by your customer’s demand for your products.

Bank loans Can Devalue Your Business

Invoice factoring is a good solution to traditional bank loans; especially in today’s economic scenario. More and more banks today have difficult to meet criteria which are no doubt affecting many people’s businesses. Even if you can get a line of credit, what options will you have when you exhaust it? If you have over due invoices, you will still have to wait in order to get paid.

You should also consider the implications should you happen to default on your bank loans, which will in turn affect your company’s credit rating and thereby make it more expensive for you to opt for other forms of financing. Invoice factoring not only eliminates such a scenario but it is also a lot more flexible.

Considering the Worst Case Scenario

As a business owner you owe it to yourself to consider the worst case scenario and be well prepared for it. Any business needs to think what if it ran short on funds?

Know that there are alternative and better means of financing available for you. Why let your unpaid invoices drain out your company’s resources when you can sell them and get paid within 24 hours. Most invoice factoring companies will purchase your invoices for at least 90% of their original value while some will give you as much as 98%.

With this much money immediately available you can take your business whichever direction you wanted to, pay bills and pay rolls on time and maintain a good, healthy relationship with your suppliers and staff. This is especially true if you run a business which needs cash now rather than later, so if you are fed up with late invoice payments go ahead and give invoice factoring a chance, it just might be what you are looking for to make your life easier.

Asset Based Lending In Canada

This article is mainly about Asset Based Lending, what it is, how it works,  and how it can help your business.

Asset Based Lending In Canada. Canadian Asset Based Lending
asset-based lending is similar to borrowing against the equity in your home. It is used by businesses to get capital fast.

Although the factoring of invoices can provide the immediate injection of cash that your company needs, there may be times when selling them at a discount is not cost effective.

For example, if you happen to be in a very competitive industry, then your profit margin may be too low to use this method. And so while the non-payment of your invoices would cause a hardship, so would settling for less than their full value.

In this situation, you may find that a loan is the best option for you.


Normally, when we think of loans, we do so with respect to purchasing something.


Let’s say that you need to replace some equipment. In that case, you might need to borrow enough money to buy it.


But let’s say that instead, you need some extra cash in order to meet a scheduled expense, such as the company’s payroll. In that instance, there would be no new asset to use as collateral.

In such circumstances, asset-based lending comes into its own because you can use some of the assets that you already have as security for that loan. It’s similar to borrowing against the equity in your home.

The repayment of that loan is made through your cash flow.

There are a couple of different types of assets that can be used for loans of this type.

One is your inventory. Now there’s nothing to say that all over your resources need to be used. You only need to enough to cover the size of the loan. And so you needn’t feel as though you’re losing control of your company.

Remember that this is a short-term fix.


Another asset that you could use is publicly-traded stock. Larger companies do this on a regular basis.

There are however, two situations that can have an impact on the ability of the company to use this option.

The first is the market price of the stock. When it’s high, more money can be borrowed than when it’s low.

The second is the interest rates, and sometimes the two are related. Higher rates mean that the loan costs more. But, the markets usually react when rate go up because it reduces the amount of money that’s available to buy stocks from all companies, not just yours.


And so, if you depend on the market price of your stock for your asset based loans, then you may not be able to borrow as much as you need.


There’s a second reason why you might want to obtain an asset based loan, and that is so that you can take advantage of an unusually large order. It could be that you simply lack the resources to obtain the materials that you would need to fill your customer’s request.



The last reason why an asset based loan might come in handy is if there is a delay in the payment of one or more of your larger invoices. Where margins are tight, you could find that a shortage of cash would impede the firm’s ability to trade at all.


Factoring: How to Obtain Cash Without Debt

 By: Chris Lanchech

obtain cash without debt
factoring invoices will help your business obtain cash without debt

I’m sure that you know already that debt can be your worst enemy.

It comes down to this: Are you solvent? Or if you’re not, will you soon be? In other words, is your insolvency temporary? Can you turn things around quickly?

This is an issue that you must consider, the frequency of which will depend on your business and your circumstances. There are no hard and fast rules.

No doubt you have seen, in the past few years, many stories of companies that had been in business for decades, but that had to close down because they were no longer solvent.

It didn’t matter if their order books were full. When the ratio of debt to cash and accounts receivable passed a certain point, the banks closed them down.

There are a number of ratios that you can use to see just how healthy your company is, and your accountant will be the best person to discuss them with, but I just want to mention one of them. It’s called the Acid Test.

To calculate this key ratio, all you need to do is to add together your invoices and the cash you have on hand, and then divide that number by your current liabilities.

In other words compare what you can convert into cash quickly to what you owe in the time it takes you to make that conversion.

The number you get should be at least one. Anything less than that is a warning sign.

Although many creditors expect to be paid when they provide the service, others will give you a grace period of 30, 60 or even 90 days before contacting a collection agency. And if that’s the case, then you may be able to recover in time.

Another approach, however, would be to conduct the acid test for each of those periods. That is at the 30 and 60 day points, as well as the 90 day one.

And it’s here where you could come unstuck.

It may be comparatively easy to pay your own bills within 90 days and as a result, satisfy your creditors; but it’s just as likely that you will have bills to pay in the intervening period.

And when that happens, you can find yourself insolvent for 30 days or more.

Let me give you an example to show you what I mean. I’ll use small numbers to make it easier to follow.

Let’s imagine that you have $1000 cash on hand and that you have $4000 in outstanding invoices. That makes your total liquid assets $5000.

And let’s also say that your invoices are supposed to be paid within 60 days. So theoretically, you will have $5000 in hand in about two months.

What are your expenses during that time? How much do they add up to be? Is it more or less than $5000? What would happen if your largest customer decided to postpone payment for another month? Would you be temporarily insolvent?

It’s in such circumstances that factoring those invoices can be helpful.

When you fail the acid test, you don’t want to a loan. You probably don’t want to tell your bank that you’re temporarily insolvent, and you’d like their help. J

And even if you could get a loan, it would be the last thing you would want because the added debt would increase your liabilities, making the ratio worse; not better.

So by factoring some of your invoices at least, you could prevent the unthinkable from happening to you.