Like a locomotive or a crowbar, asset-based lending (ABL) may not be very pretty, but it gets the job done. In today's risk-averse lending carnival, putting it all on the line is often the only way to borrow the money you need for your first or next business deal. That could mean the equity in your home or any other asset you swore you'd never, ever touch--and it often does.
The best way to describe asset-based lending is by describing what it isn't. Let's compare it to typical national bank financing. Unlike banks--which prefer borrowers with high earnings, excellent credit histories, strong balance sheets and predetermined debt service ratios--asset-based lending attracts companies with high leverage, negative net worth, recent losses, and fast growth and expansion needs. ABL packages are offered mainly by nonbank financial institutions.
"Under traditional lending guidelines, these borrowers wouldn't qualify. However, asset-based lenders look at, among other important items, the company's worth, which includes inventory, equipment, accounts receivable, real estate and other assets," says Steve Ainsworth, senior vice president of asset-based lending for First American National Banking. ABL parameters also allow for higher advances against certain collateral, encourage capital equipment purchases without requiring additional security and don't restrict growth.
Keep in mind that ABL criteria vary depending on the lending institution, and sound and responsible lending decisions always apply, which means a considerable number of applicants won't qualify for an asset-based loan. The size of available loans varies, but companies that qualify have typically been in business for a minimum of three to five years.
ABLs can be used for just about any business purpose, but they're most often used for refinancing, leveraged acquisitions, mergers, recapitalization, expansion, seasonal sales, debt restructuring, turnaround and/or rapid business growth.
For additional information and a great glossary of ABL terms, contact GE Capital for its free publication, Guide to Asset Based Lending, at (877) 217-9415, ext. 1, or visit their Web site.