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Asset Based Financing |
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TARGET USER: |
Companies with revenues of up to
$20,000,000. This product can be for
manufacturers, wholesalers, distributors, service companies and others. The target users typically do not qualify
for traditional financing due to higher than acceptable leverage, a high rate
of sales growth or having been in business for a relatively short period of
time. |
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LOAN TYPES: |
Loans under this structure can be up to $5,000,000. The loan is usually structured as a line of
credit secured by accounts receivable and/or inventory. Advances under the line of credit are based
on amounts of up to 75% of accounts receivable and up to 50% of
inventory. Borrowers will need to
supply monthly or even daily detailed reports verifying the value of the
accounts receivable and inventory base. |
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HOW TO APPLY: |
Borrower will need to provide, at a minimum, three years of
fiscal year-end financial statements and the most recent year-to-date
financial statement. The borrower will
also need to provide a current detailed listing and aging of all accounts
receivable and inventory. Once this
information is reviewed, additional information may be requested. The owner(s) of the company typically will
be required to personally guarantee the loan.
The borrower can make applications to medium and large sized financial
institutions as well as private asset based funding companies. |
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WHO’S NOT ELIGIBLE: |
Those companies that do not generate accounts
receivable and inventory levels during the ordinary course of business. |
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ADVANTAGES: |
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Provides a source of funding for those companies
that are not able to secure traditional financing. |
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u Provides a quick source of cash on a daily basis. |
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Allows the company to leverage existing assets to
sustain continued growth. |
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Establishes a relationship between a financial
institution and the company, which will assist in securing future borrowings. |
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DISADVANTAGES: |
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Cost of borrowing is typically higher than
traditional financing due to risk and monitoring requirements. |
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Requires detailed financial information and
reporting on a monthly, and sometimes daily, basis. |
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Source: Economic Development Council |
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Alternative
Finance Committee, 2001 |
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