Time is money, and when you’re in need of cash flow you need to get information fast. Let’s cut to the chase with the bullet points on asset-based lending.
What is Asset-Based Lending (ABL)?
- An asset-based loan allows you to leverage your accounts receivable, inventory, equipment and real estate in order to get access to working capital
- It can be a loan from 6 – 24 months, but generally averages around 1 year
- Often used by established companies with definable and identifiable internal processes and controls.
What assets can be used for ABL?
- Accounts receivable: Invoices that customers owe you now or in the future
- Inventory: raw materials, work in progress or finished goods sitting in your warehouse
- Machinery and equipment: Funding can be up to 75% of the liquidation value.
- Real estate: Register a collateral mortgage against residential or commercial properties. You may also check into your property values with an up-to-date appraisal from your real estate agent. Liquid Capital can provide more info on the process.
Why would your company turn to ABL?
- It’s a more flexible type of financing
- Well suited to companies with seasonal sales
- If you’re in rapid growth stages, it can get you faster access to cash flow
- Clients outside of covenant with their bank may find this is a better option
To qualify for ABL, your company should:
- Have a strong credit rating
- Have comprehensive financial reporting and internal controls
- Monthly financial statements
- Aged A/R and A/P summaries
- Have proven success and a good track record
Read Related: What is accounts receivable financing and factoring? Leverage unpaid invoices and turn them into liquid cash flow.
ABL may be right for your company if you are:
- Short on working capital
- Fall shy of bank loan criteria
- Have seasonal capital requirements that don’t fit into the bank loan structure
- Looking for lower rates than a factoring solution
- Not looking for a long-term contract for financing
- Consider optics important and you don’t want your client experience to change. Discretion is key with non-notification ABL, typically available to larger businesses. Check with your Liquid Capital Principal to see if this is available to your business.
- Payments are deposited into a “sweep account” (typically at your bank) and your client is never aware that Liquid Capital is handling your financial transactions.
- In a strong growth cycle and need quicker access to working capital.
- Liquid Capital calculates borrowing amounts on a weekly basis, compared to banks that traditionally do this on a monthly basis. If you’re growing, your ability to borrow will increase.