Asset-based lending, and its cousin, factoring, has been around for quite some time in one form or another. The idea of securing a loan using something of value is, in fact, millenia old. In its earliest form, factoring, a form of asset based lending, dates back to 2000 B.C. There traders in ancient Mesopotamia (modern-day Iraq, Kuwait and Syria) used a form of factoring in their business dealings. In the 1300s modern factoring began to take shape in England as a form of financing for clothing merchants. Then in the 1600s factoring came to the New World, where American colonists sought advance payments on raw materials like timber, tobacco and cotton shipped across the Atlantic to England. In the 1800s The Industrial Revolution arrived in the 1800s and swept across Europe and the United States. With its roots in factoring, Asset Based Lending came into vogue in the 1980s and 1990s when finance companies like GE Capital and GMAC, who already had factoring arms, established their own ABL lending units. With the advent of technology, modern asset-based lending has made its way into the small to medium-sized business community the last few decades and more businesses recognize the value of this commercial financing option.

The Commercial Finance Group (CFG) has been around since 1974, so it’s safe to say, we’ve seen a thing or two. We’ve helped hundreds of businesses across the entire US over the years. We’ve had the distinct pleasure to see these businesses grow and thrive using our ABL solutions. Our mission is to provide the access to capital a company needs to bridge the gap so that they can operate, grow, and succeed. Below, we’ll take a look at some other common financing options and why ABL with CFG is the obvious choice for your working capital needs. Fill out our online application today to get started!

Why ABL is better than other types of Commercial Lending

Installment Loans

When most people think of a loan, they think of a traditional installment loan, or a term loan that you receive from a bank or a traditional lender. These loans are paid back at regular intervals at a set amount and over a certain time period. These are the types of loans most people are familiar with (car loans, an equipment loan or a mortgage). The monthly payment consists of principal and interest. The interest rate is fixed, and the loan amount is based on two things; 1) the amount of cash flow you have to service the loan, and 2) the LTV (loan to value) of the asset being financed. The LTV is usually determined by an appraisal if the asset is used, or the purchase price, if new. The interest rate is determined by your business credit history, time in business, historical cash flows, and the LTV ratio. Start-ups are considered riskier since they don’t have a history of success, hence they struggle to secure this types of financing.

Traditional installment loans can be great commercial lending option — if you qualify. In fact, the minimum requirement that most traditional lending institutions require is two years of operating profitability. They also require positive cash flow, and a strong personal credit score. So, while they have the asset as collateral, they are really looking at other ways to get repaid. They focus primarily on your historical cash flow and most will not give you credit for any cash flow that the asset you are purchasing will generate (looking out the “rearview mirror”).

Obviously, these credit metrics eliminate a lot of newer, smaller businesses, and especially those with erratic cash flows and profitability and those whose owners may have lower credit scores.

This is where CFG steps in. Our commercial lending solution takes the form of asset-based loan. We don’t focus on your personal credit score or have a requirement for “time in business.” We treat all of our potential customers differently since they are all at different stages of maturity. When you approach us for an asset-based loan, we’ll take a look at your business goals, the value of the underlying asset, your projected cash flow (we look out “the windshield”), and then we’ll see how (or if) we can meet your needs.

One of our operating values, and what sets us apart from other asset-based lending companies, is our tenure and experience level. We will also tell you truthfully if we think that asset-based lending is the best thing for your company. In all cases, we’ll make an honest recommendation. Learn more about CFG online today.

SBA Loans

The SBA stands for Small Business Administration. SBA loans are federal government backed loans that carry with them a lower risk for lenders since a portion of the loan is backed by the federal government. The SBA guarantee, as it is called, can range from 50% to 85%, depending on the amount and type of loan. And though the SBA offers a revolving line of credit, very few banks will offer this product to borrowers because the lenders do not have the operating capability to monitor and handle such loans. The lenders usually won’t tell you that, but you should be aware.

Also many people are confused by SBA loans, thinking they are funded directly by the federal government. That is not true, and in fact, the SBA works directly with lenders, and provides the lender a guarantee. The lender is the one who directly provides the funds. All lenders who want to offer SBA loans have to go through an extensive and rigorous approval process. This is because the federal government doesn’t want to lose money on bad loans. They need to make sure that lenders are being prudent with their loan approval process to ensure that they don’t lend money to high-risk customers who are likely to default. If too many of a lending institution’s SBA loans default, the lending institution may lose their coveted SBA lender status.

That being said, SBA lenders do tend to lend out more to those who normally wouldn’t qualify for traditional loans. The guarantee provided to the banks is an inducement for the bank to make a loan it wouldn’t otherwise provide. So, while the government wants to protect taxpayer dollars, they also want to provide an opportunity to as many small to medium-sized businesses they can.

SBA loans often require a strong business credit score, and there is usually a requirement to place a lien on all the assets of the business, and if there is not sufficient collateral at the business, the SBA will require taking personal assets as collateral as well. The approval process is also long. Sometimes it can take months to gain approval. In the fast-paced world of business where seconds count, many small to medium-sized businesses don’t have months to wait.

The Commercial Finance Group can step in to alleviate the worry and anxiety that can come with waiting for an answer to financing. We can work with your SBA lender. We can provide the working capital financing while the SBA lender provides the term loan financing for your equipment and real estate. However, we have to be brought into the transaction at the same time you are considering an SBA loan. That allows us to secure the collateral we need. With our quick, easy process of obtaining an ABL loan, your business can continue to remain nimble, grow your products and services, and prosper beyond your wildest dreams. Apply online today!

Personal Loan for Your Business

A personal loan is a traditional loan, but made in the name of a person (usually the business owner) instead of the name of the business. Many successful businesses have been started with personal loans. With a personal loan, the application process is very similar as in a traditional loan for a business.

The small business owner will obtain the loan in their name, and they will be using their personal credit score and income in order to qualify. A personal loan for your business is popular for start-up companies because the business has no history. Personal loans are similar to Installment loans made to a business. They require set monthly payments and are for a specified term. Many traditional lending institutions will offer personal loans, such as banks and credit unions.

The risk with personal loans is that you are personally liable for the loan should you not be able to make the payments. This can happen if the business owner takes out the loan and intends to have the business make the payments, but then something happens to the business (revenue decreases or the economy tanks, like what has happened with COVID-19) and the payments cannot be made. Then, the business owner can have their personal credit take a hit, or worse, they can lose any personal collateral they put up for the loan, usually their house.

With ABL loans from CFG, we do not take your personal assets as collateral. We only look to take the assets of your business as collateral. However, we will also limit the amount of the loan to an acceptable value of your business assets, and this can lower the amount of the loan you receive for us. However, we believe you should keep your business assets separate from your personal assets. If the business can not make it on its own, perhaps the business should not exist. That’s a hard thing for a budding entrepreneur to hear, but that doesn’t make it less true.

Bank Lines of Credit

Many businesses utilize a bank line of credit. The amount of the line of credit is based on your historical cash flows, past profitability, current leverage on the business, and any account receivables concentrations you may have. Secondarily, the bank will look at the amount and type of business assets, your personal financial statement, your personal credit score and personal assets. This type of facility is designed to revolve, meaning it can be drawn upon and repaid back many times over the life of the line. In some cases, the amount you can draw will fluctuate based on a percentage of your current assets. As your assets fluctuate up and down, so does the amount you can borrow. Usually you pay interest only on the amount used but there will also be a period where the line is required to rest at a zero balance. This can be difficult for a growing company and bank lines are best suited for mature companies or those with slow growth. A pitfall with bank lines of credit is the reporting that is often required to maintain the line. The bank will require the borrower to report financial and collateral information as often as weekly and there is usually a financial covenant or two. Such reporting can require a company to add a person to handle this reporting. Borrowers often overlook this additional cost to the financing. Bank lines of credit also tend to have a higher cost than a traditional term loan, especially when adding in the reporting requirements. And many banks will require either reviewed or audited statements from a CPA; this adds additional costs also overlooked by the borrower.

There are both unsecured lines of credit and secured lines of credit. An unsecured line of credit requires a high credit score and/or business history, making these impossible to obtain as a start-up or newer business.

Business lines of credit are great to meet unexpected cash flow needs, to purchase supplies or inventory, or to adjust for seasonal changes.

With an ABL loan from CFG, your reporting requirements are less, we require no financial covenants, we do not focus on your historical cash flow or your personal credit score, we do not penalize you for any accounts receivable concentrations you may have, we do not require any “clean down, or resting period” and you can have outstandings on your line throughout the life of the line. We encourage you to reach out to our team to see what we can do for you.

Choose ABL Lending From CFG Over Other Commercial Finance Options

The SBA claims the number one failure for small businesses is not enough capital, and there is a tendency to underestimate one’s need for capital and to focus on the cost of capital. That is a mistake. And while having choices in small business lending is great, they can be overwhelming and confusing. There are many different terms, requirements and loan types. The process can be daunting for new businesses or someone not familiar with the lending world. However, we believe one needs to focus on what’s more important for their circumstances, the Cost of Capital, or Access to Capital. In the early stages of growing your business, Access to Capital is more important than Cost of Capital. In these post COVID-19 times, you have to live to see another day, and with an Asset Based Line of credit from The Commercial Finance Group, we provide you with access to capital to live another day.

The Commercial Finance Group offers ABL lending with clear terms and costs so you’ll have all of the information you need upfront. There are no hidden fees or “gotcha ‘s.” ABL is straight-forward lending meant to make the procurement of working capital easy and simple for small businesses. Our small business lending is tailored to your needs, and after we understand your business’ needs and cash flow cycle, we’ll see how we can help. Our team is honest and direct, and we won’t enter into a partnership if it is not beneficial.

If your business is growing rapidly, new, has high leverage, has erratic earnings, or marginal cash flow, asset-based lending may be for you. You can alleviate the headaches and the worry that comes with not having enough capital to cover your expenses for a few days, and with no restrictive financial covenants or extra fees, we can help. Contact our team today to begin!