Asset-Based Loan Participation Program
About Asset-Based Loans
Asset-Based Loans, also known as ABLs, provide working capital and liquidity based on fixed assets. Asset-Based Loan structures are typically in the form of revolving lines of credit (LOC). An Asset-Based Loan offers creative solutions for businesses in tighter cash-flow periods and gives business owners a revolving line of credit to draw upon and expand during seasonal business fluctuations.
There are various asset classes that businesses can use as collateral for the ABL working capital solution, including:
Eligible accounts receivables are computed by the lender and an advance rate is applied to the revolving pool. Eligibility of AR is determined by the billed vs unbilled status and how long the AR is outstanding.
Lenders will determine a net orderly liquidation value (NOLV) of the inventory and provide and advance rate against this value. Advance rates will vary depending on the type of inventory (ie, raw materials, finished goods, customized products, etc).
Machinery & equipment loans are some of the easiest to finance given the relative ease to assign a value to the assets. Lenders will appraise the equipment and the loan size will be determined by the loan to value (LTV) ratio.
Purchase orders are considered an asset for some non-bank asset-based lenders. They can provide an advance rate against the purchase order value assuming the customers are large creditworthy businesses.
Lenders will order an appraisal on the real estate and use the loan to value ratio to determine loan size. Many lenders prefer owner-occupied real estate -- RE in which the operating business both owns the real estate and operates from that same location.
Asset-based lenders typically use a borrowing-base formula (derived by multiplying the value of eligible collateral by an advance rate or discount factor) to structure transactions. Advance rates such as 75-80% of eligible receivables and 40-50% of eligible inventory are typical.
ABL financing is very often more flexible than a traditional commercial business loan including:
- Ability to borrow significantly larger sums.
- Lower all-in costs than mezzanine loans, subordinated debt or equity.
- Fewer restrictive covenants. Longer repayment terms.
- Revolving loan facilities not requiring pay down unless collateral diminishes or deteriorates.
Click below for a list of ABL resources:
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