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Aug 9B2B CFO

Alternative Financing Solutions – Asset Based Lending

Aug 9B2B CFO

Alternative financing for companies that do not have the earning history, positive equity or credit rating for traditional financing.

If you’ve been turned away by your bank there are alternatives to raising cash through Asset Based Lending. This lending, often a quick remedy is secured by pledging as collateral assets (Accounts Receivable, Equipment, Inventory, Purchase Orders). The 3 primary types of asset based lending are:

  1. Revolving Lines of Credit– Revolvers offer the greatest opportunity to maximize working capital with the borrowing base or credit limit based upon qualifying receivables and inventory (and in some instances equipment) that the borrower pledges a security interest to the lender. Revolvers are for a fixed term, generally 3 years or less and the borrowing base can increase or decrease as the qualifying collateral changes. Generally revolvers are the most cost effective asset based solution.
  2. Factoring – Not a loan, rather a sale of your receivables. Lenders will look to aging to determine what receivables may qualify, typically only those under 90 days and payment/write-off history to determine their discount rate. Ownership and all rights and risks transfer to the “lender”.
  3. Purchase Order Financing – Most typical when a company receives a disproportionally large order the borrower then collateralizes the loan with the purchase order. Qualifying expense is typically limited to associated direct labor and materials to fulfill. Purchase order financing is often the least cost effective asset based solution.

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