Asset Based A/R + Inventory revolving line of credit ($1 million-$25 million+)
Most lenders tend to shy away from aggressive advance rates on inventory in today’s conservative lending environment, but not all of them. Most banks and asset based lenders usually top out at a 40%-50% inventory advance.
Asset-based lending or ABL is one of the options companies can run to when cash flow becomes a bit of a challenge. There are many loans you can apply for, but these usually require collateral that the lender can take if the borrower ends up not being able to pay. Also, depending on the amount you need, most loans require that the borrower is backed up by stellar credit.
The advantage of ABL loans is that you can borrow money based on the existing assets that you have. ABL loan providers will review your asset portfolio and offer you a percentage of whatever these assets are worth.
Because most companies have varied asset portfolios, there are also various ABL lending options that you can apply for:
- Inventory Financing
Inventory is one of the main assets of any company, especially if you operate in certain types of industries. Depending on how much finished goods inventory you have, an ABL loan can give you up to 70% of the inventory cost. With inventory financing, you can apply for a credit line that’s worth as much as $4,000,000. This means that your inventory is not only good for selling, it can become the basis of your ABL loan approval as well.
- Accounts Receivable Financing
The total amount of your Accounts Receivable is another asset that can give you access to ABL loans. These Accounts Receivables typically consist of the money that you are expecting from various customers from goods and services that you have already given them.
You can apply for a loan that’s usually worth 80% – 90% of your receivables, and in most cases, the lender is given control over collecting the receivables. This will depend on the agreement between lender and borrower. This type of ABL loan transfers the risk of the receivables to the lender and also frees up your working capital so you can use it elsewhere.
- Equipment Financing
If you operate a company that needs various types of equipment, furniture, and software to run, the good news is that you can make use of these assets to apply for an ABL loan. It’s like hitting two birds with one stone, because you will certainly use this equipment for your operations anyway.
With ABL loans, your company can become more liquid without having to prepare too many reports for the lender. If you need cash and you need it now, asset based lending can really help you out because it uses your assets as collateral. Compared to other types of financing, asset-based lending typically has fewer covenants to adhere to, so borrowers have more flexibility with this compared to other options.