How asset-based lending works

How asset-based lending works

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You might have heard about the term «ABL» — but don’t know exactly how asset-based lending works. Get the overview here in this 3 minute read.

How asset-based lending works

For small, medium and large-sized companies that are in search of alternative ways to secure funding — hopefully due to growth and positive strategic pivots — asset-based lending (ABL) could be a potential solution. ABL works by utilizing the assets your business already has, such as accounts receivable, inventory, machinery or equipment as collateral for a loan.  

Here are the basics of ABL and how it could work for your business.

Why ABL?

Asset-based lending has a number of benefits over traditional bank loans. Some of these benefits include:

  • Speed: Delivery of funds via ABL is generally much faster than traditional banking tools.
  • Improved liquidity: ABL can help make your cash flow much more predictable — particularly during times of rapid growth.
  • Flexibility: Funds received via ABL can be used for almost any purpose as long as it is a business need.
  • Access: An asset-based financing program can be easier to obtain than a bank loan.
  • Fewer covenants: As there are less covenants associated with ABL, managing the line and staying compliant is much easier than with a chartered bank.

ABL can also have the added bonus of laying the foundation for other methods of funding.

How can your business obtain ABL?

Your asset-based loan request begins with a detailed assessment to determine the viability of your business and its assets — that is, your collateral. This initial process also includes a thorough field examination of your physical offices to observe things such as your accounting and internal control practices. Why? It’s important for the lender to be able to see the assets that will be used as collateral such as account receivables, inventory and machinery or equipment.

This assessment will include a number of appraisals, such as that of the inventory, to determine the net orderly liquidation value (NOLV) and the market value. Upon completion of all reviews and appraisals, the loan agreement will be created.

Asset-based lending explained: How it works

What determines the rate and terms of ABL?

A number of factors can influence how much money a borrower receives — and at what cost. A lender will generally fund up to 80% of the total accounts receivable, but this can go higher if the accounts receivable is insured.

If inventory is used as an asset, funding is derived from a percentage of the NOLV, cost or market value. Deductions can be made if there is inventory abroad or obsolete stock.

Is my company a good candidates for ABL?

A wide range of industries including manufacturing, wholesale distribution, retail and service companies are often prime candidates for ABL. However, the most important factor is to have asset-rich balance sheets. This demonstrates that a majority of your total assets could be relatively liquid, such as accounts receivable (particularly with creditworthy customers) and inventory.

Lenders look for businesses with strong credit ratings that have deeply-integrated management teams, along with a solid history of operational performance. Many companies who qualify for ABL have a good amount of sales, but for one reason or another, may still not qualify for traditional bank financing.

Next steps: Choosing an ABL partner

Asset-based lending is an relatively common way for businesses experiencing rapid growth to get the funds necessary to fuel that uptick. If ABL is on your radar, be sure to consider the following when evaluating potential partners:

  • Relevant industry experience
  • Length of time in business
  • Availability and customer service
  • Their funding sources

ABL is one of the most flexible tools available for fast-growing businesses that are in search of an alternative to banks. Could asset-based lending be the solution to your cash flow needs? Find out more about ABL today.

 

Photo by Karolina Grabowska from Pexels
Image by ar130405 from Pixabay 

Financiamientos recientes de Liquid Capital - Junio 2020

Financiamientos Recientes – Junio 2020

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Financiamientos recientes de Liquid Capital - Junio 2020

business

Key government financial programs & business aid

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Find out about possible government financial programs and resource options available for your business.

business

It’s no secret that businesses have seen their fair share of changes in the last few months. As owners, C-levels and managers adapt, it’s a good idea to find all the available financial support and resources at hand. While Liquid Capital can provide much-needed cash flow, this can also be a supplement to other resources, including government grants.

At this time, both the American and Canadian governments are providing some different funding options for small and medium-sized businesses. Here’s a list of some of the highlights below.

USA: Government financial programs

america money

1. SBA: Small Business Guidance and Loan Resources

The Small Business Administration has by far the most comprehensive funding resources available when it comes to seeking financial assistance due to the coronavirus. With content available in 17 different languages, it includes coronavirus funding options, guidance for businesses and employers, as well as information on local assistance, SBA products and resources, and government contracting.

2. Paycheck Protection Program

The SBA is also offering a Paycheck Protection Program, which provides a loan to be used towards keeping your employees and workers on the payroll. The SBA will also forgive the loan, granted it is used for payroll, rent, mortgage interest or utilities. Applications can be completed directly from the SBA website.

3. Economic Injury Disaster Loan Emergency Advance

The SBA is also offering this program with loan advances up to $10,000 of economic relief for businesses that are currently experiencing temporary loss of revenue. Additionally, they have recently revised the eligibility criteria to include agricultural businesses.

4. U.S. Chamber of Commerce: Coronavirus Small Business Survival Guide

The U.S. Chamber of Commerce has compiled a list of resources to help small businesses throughout these uncertain times. With content available ranging from general coverage, information on the federal government’s coronavirus stimulus legislation, small business loans, how to manage employees as well as remote work

5. USA Government: Finance your business

The United States Government has compiled a list of funding sources that they are backing including links for small business loans and other government funding options for your business. This is part of their Coronavirus Aid, Relief, and Economic Security Act.

Canada: Government financial programs

canada money

1. Regional Relief and Recovery Fund 

Offered by the Government of Canada, the Regional Relief and Recovery Fund (RRRF), gives businesses located outside of metropolitan areas access to additional financial resources. $675 million of the near $1 Billion total of the fund will be allocated to help support regional economies. Applications can be completed directly from one of the Regional Development Agencies listed on the page.

2. Government of Canada COVID Benefits Quiz

The Government of Canada will be offering a variety of financial services during the coronavirus pandemic, ranging from the individual to small and big businesses alike. To navigate which option is best suited to you this quiz will point you in the right direction.

3. Relief measures for Indigenous businesses

Additionally, the Canadian government has set up a specific relief fund for Indigenous businesses, which includes up to $40,000 for small and medium-sized businesses. The capital is divided with $30,000 as an interest-free loan and a non-repayable contribution of $10,000. Consult the contact information on the dedicated page for more insights on the application process.

4. Canada Enterprise Emergency Funding Corporation: Large Employer Emergency Financing Facility

This fund was specifically set up for large Canadian employers who need financial assistance due to the pandemic, and will provide loans upwards of $60 million. The minimum annual revenue requirement is $300 million or more, however, businesses in the financial sector are excluded from applying. The applications should be completed by emailing LEEFF-CUGE@cdev.gc.ca to register intent. 

5. Canada Mortgage & Housing Corporation: Canada Emergency Commercial Rent Assistance

The CMHC has set up a rent relief program from those who own commercial properties and have small businesses as tenants who have been affected by the coronavirus. Those eligible for the program will be able to acquire forgivable loans if they agree to reduce the rent by 75% for the months of April, May and June, as well as meet operating expenses on commercial properties. Application can be completed directly through the website.

Additional Resources

research

Better Business Bureau

Although not specifically for funding options, the BBB does offer a range of helpful business tips on navigating the pandemic — plus information on price gouging and scam alerts. Additionally, they offer a COVID-19 toolkit for both Canadian and American businesses.

 

Next Up: 6 comparisons between invoice factoring and cash advances

At Liquid Capital, we work with clients who operate businesses in a variety of industries and office structures — whether from busy downtown buildings, the manufacturing floor, on-the-go or from their home office space. We’re business people ourselves, and our company is built on a network of locally owned and operated Principal offices. Whenever you’re talking to Liquid Capital, you’re talking directly to your funding source and a fellow business person.

Images from Pexels, and Pixabay

Liquid Capital Corp. announced as the exclusive, preferred alternative business funding vendor for the Illinois Bankers Association (IBA).

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The board of Illinois Bankers Business Services, the for-profit division of the Illinois Bankers Association has approved Liquid Capital Corp., and their Bank Alliance Program, as a preferred vendor.

Established in 1999, Liquid Capital Corp. is a direct funding source that provides strategic alternative financing solutions for business to business companies. They address issues such as constrained cash flow, supplier payments and asset-based lines of credit. They have administrative offices in Toronto and Montreal, Canada as well as Irving and Austin, Texas and a network of 45 sales offices spanning North America. To date, Liquid Capital has deployed over $3 billion in financing transactions.

As an expansion of Liquid Capital’s experience in working with banks, they have developed the Bank Alliance Program. Recognizing the need for banks to compete and present a more broad-based approach in addressing the financing needs of prospective and current customers, the Bank Alliance Program provides a proactive offering of alternative financing options when traditional lending is not available or is limited. The structure of the program is developed in collaboration with the bank based on their needs and preferences as an enhancement to their business and strategic plans. The goal is to provide the bank the opportunity to increase their customer acquisition and retain the business and loyalty of current customers.

In achieving preferred vendor status, Tom Stamborski, the program’s developer and manager said; “Liquid Capital is honored to be approved as a preferred vendor and excited to play a part in the continuing history of the IBA in its delivery of products and services to its members. The IBA is seen as a lead innovator among state banker associations and we look forward to complimenting their efforts by delivering to their member banks financing products and support that will contribute to their growth and success”.

For more information, contact:

Tom Stamborski – Program Manager – Liquid Capital/Bank Alliance Program
847-842-3300 – tstamborski@liquidcapitalcorp.com

Callen Stapleton – President, Illinois Bankers Business Services
217-789-9340 – cstapleton@illinois.bank.com

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6 comparisons between invoice factoring and cash advances

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Contrary to what some might think, invoice factoring and cash advances have 6 key differences.

funding

The first thing to consider when looking for financing is to understand why you need the money. Do you need working capital sooner rather than later? Is it a one-time thing or an ongoing need? 

To help you choose, here are six considerations when deciding between invoice factoring and cash advances. (For a description of both options, read part one in this series.) 

1. Purpose of funding: Why do you need the capital? 

You can use the money from both invoice factoring and cash advances for any business expense — whether you need to pay employee salaries, operational or supplier costs, or cover capital costs. Factoring is a good solution for ongoing cash flow problems caused by slow-paying clients because you unlock the money right away without having to go into debt. Some businesses look at cash advances for one-time expenses or projects when they feel stuck, such as new capital purchases — but be warned, the interest costs can add up, causing you to actually pay more than you borrowed! 

2. Application process

application

Both invoice factoring and cash advances have relatively simple application processes, however, they are based on different information. Factoring depends on the current and immediate future state of your accounts receivable, while cash advances depend on your business and credit history. That makes factoring more attractive to many business owners since it’s visible proof of their ability to repay. 

3. Speed of funding

speed

Most factors are funded within a few days for the first invoice, and even faster on future invoices — sometimes within 24 hours! Cash advances are also funded quickly, typically within a few days, but once again, that speedy promise to get the advance also comes with a costly downside. 

4. Cost of funds

cost

Both cash advances and invoice factoring have variable costs because of their different structures. Generally speaking, factoring costs a small percentage of the unpaid invoice. 85% of the value of the invoice is paid immediately, the rest is paid on receipt of payment minus applicable fees. Most factoring options don’t have any origination costs, except for extremely large or

 complex factoring deals, which would be discussed in detail and agreed upon with all parties. 

Tip: always look for clear, transparent terms from any lending provider to avoid unpleasant surprises. Learn other tips here. 

Cash advances, on the other hand, charge significantly higher rates on over the lifetime of the advance, and can even be as high as 40 to 50%.

Additionally, cash advances typically have an origination cost that is charged as a percentage of the total advance amount (usually 1 to 3%). This is on top of the regular interest you’re required to pay every week or month.  These high percentages can cripple a business. 

5. Opportunities for growth

opportunity

Invoice factoring funding is dynamic because it can grow with your business. The more you sell, the more you can borrow. It gives you the immediate ability to borrow more and expand your business. 

Cash advances are fixed loan amounts that are not easily increased since you’ll need to pay off the existing advance and then qualify for a new one. 

6. Availability to new businesses

your business

If your business is still new, invoice factoring is a good option for financing, as it depends more on your client’s history rather than yours. You also won’t need to submit the same amount of paperwork as you would for a cash advance. As a new business, you probably don’t have the tax returns, detailed historical financial statements, expanded business plans, or six months worth of banking statements that a cash advance requires.

Beyond its appeal to newer businesses, invoice factoring is a frequently-used way to support growth for larger, established businesses – it’s not uncommon for companies to factor millions of dollars worth of invoices (see our Recent Fundings). 

 

Ready to increase your regular cash flow? Turn your open invoices into working capital with Liquid Capital’s Invoice Factoring solution. 

 

At Liquid Capital, we work with clients who operate businesses in a variety of industries and office structures — whether from busy downtown buildings, the manufacturing floor, on-the-go or from their home office space. We’re business people ourselves, and our company is built on a network of locally owned and operated Principal offices. Whenever you’re talking to Liquid Capital, you’re talking directly to your funding source and a fellow business person.

Images from Pexels, Pixabay, and Unsplash

home business

5 ways to shift into a home-based business model

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With more companies moving out of the office, here are some tips to shift yours into a home-based business.

home-based business

Gone are the days when remote working was a novelty. Today, working at home is just as normal as getting dressed and going into the office each day. And if you are planning to shift into a home-based business model, you have fewer obstacles than ever. But that doesn’t mean there aren’t challenges along the way. 

Here are five ways to get your home-based business set up and keep the momentum going.

1. Get your finances in order.

When launching any new business strategy, your first task is to ensure that you have the money to operate. But finding extra cash can be difficult, particularly if you’ve lost contracts and have dipped into reserve funds or even personal savings because of the pandemic. But there are ways to get financial assistance. Some organizations such as ZenBusiness, for example, have launched a COVID-19 relief strategy and are offering grants of $1,000 to select businesses. 

Even if you miss out on a grant, there are more options to get working capital. If you have outstanding accounts receivable, for example, you may be able to get financed in as little as 24 hours from our team who can help select the right funding solution.

2. Handle the legal details now.

Legal paperwork

Regardless of what you do or where you’re located, all businesses must be set up with the right legal structure. If you are a freelancer, this may just be something as simple as adding income to your personal tax filing. However, anything more than a solo endeavor will require a legal strategy. 

This might include having a business plan, partnership agreement, or terms of service in place before you get started. In the US, the Small Business Administration further asserts that you’ll need to register your business name, trademarks and domain. This helps protect you from competitors and legitimizes your presence in the business world.

3. Master marketing.

Social media marketing

Marketing may not come naturally to every business owner, but it’s a crucial element when launching and running your operation. Fortunately, thanks to the Internet, there are plenty of places to find relevant information on how to market your business. Optimally, you will identify your target customer and cater to them on their terms. To get you started, you can use a mix of social media marketing, search engine optimization and branding.

Related: 10 ways small business marketers can crush big competitors

4. Grow your team.

Home-based business: Growing a remote team

Think of your business as a garden. Once you have planted the seeds, you can watch it grow. But you can’t do it alone, and you will eventually need to place talent in areas where you may not be the strongest. Hiring remote workers is a smart option and one that will allow you to continue to operate from the comfort of home. But remember to prioritize collaboration and communication. Keep your employees up-to-date with what’s going on by sending out regular updates or collaborating on Slack and similar channels. 

Critical to keep on top of here is salary and payroll. Even though employees are working remotely, it’s important to compensate them fairly so they stay motivated and rewarded for quality work. This also helps reduce turnover, which can increase your overall expenses. HRDirector even notes that a telecommuting employee may bring home around $4,000 more annually than they would in a traditional office setting.

Many business owners can run into challenges making payroll at certain times throughout the year. Liquid Capital financing options can also help you get over these hurdles.

5. Evaluate every day. 

Evaluate data

Any size of business can benefit from performing routine evaluations. Even if you’re comfortable with what you are doing, it never hurts to dig in deep to make sure that your customers are happy and they are capitalizing on all available market opportunities. Routinely ask yourself questions about your direction, available resources and areas where you might improve. Failure to do so can leave you sitting stagnant.

 

To summarize, you have to start with financing. Without capital, it’s going to be exponentially difficult to get up and running. Next, make sure to take care of the legal aspects, learn how to market your business, and grow your team into a supportive organization that can help you move to the next chapter. Finally, never get complacent. Evaluate your business each day, and you’ll have many more opportunities to grow, even when running your company from a home-based office.

 

Next Up: 3 biggest financial challenges facing small business owners

At Liquid Capital, we work with clients who operate businesses in a variety of industries and office structures — whether from busy downtown buildings, the manufacturing floor, on-the-go or from their home office space. We’re business people ourselves, and our company is built on a network of locally owned and operated Principal offices. Whenever you’re talking to Liquid Capital, you’re talking directly to your funding source and a fellow business person.

 

Images from Pexels and Pixabay