These loans are based on the assets pledged as collateral and are structured to provide a flexible source of working capital by monetizing assets on the balance sheet. While troubled companies often rely on asset-based lending (ABL) to provide turnaround, recapitalization, and debtor-in-possession (DIP) financing, ABL is also used by healthy companies seeking greater flexibility in executing operating plans without tripping restrictive financial covenants. Asset-based loans are structured with advance rates being tied to a specific percentage of eligible collateral according to their respective asset classes.
For example, Account Receivable having a higher advance rate than Inventory. The repayment of asset-based loans happens as the assets convert to cash in the businesses typical “business life cycle.” Inventory gets sold, is turned into an Account Receivable, A/R is collected and paid back against the loan. The cycle repeats as the company continues to build inventory, generate A/R, and collect remittance from its customers.
Contact us if you’d like to know more about our asset-based financing options.