Asset Based Loans

ABL is a revolving line of credit that combines the ease of a bank line of credit secured by a “borrowing base.” The “borrowing base” is an asset used as collateral that is typically accounts receivable, but might also include inventory, equipment or even real estate. How much credit a borrower can access is primarily determined by the quality and value of the collateral. The size of an ABL loan is typically larger than unsecured types of loans and ranges between $100,000 and $5,000,000.

An ABL is used when a typical senior bank loan is not an option. Unlike traditional loans that are based on the creditworthiness of the borrower, asset-based revolving credit lines are based on the value of the assets and creditworthiness of your customers. The primary factors that are used to underwrite the credit include age of invoice, when it is due to be paid, and the credibility of the borrower. Essentially, you can obtain financial support for your business on its own merit using your accounts receivable and the principle source of repayment. In the case of accounts receivable, the lender may advance funds based on 70%-85% of receivables, and up to 50% on inventory. The borrower gets immediate cash by assigning the future revenue associated with their accounts receivable.

An ABL provides quick funding that can be accessed without a long, drawn-out approval process and provides flexibility and increased availability.

Ideal candidates for ABL include manufacturers, distributors, wholesalers and service-based businesses.  ABL is particularly useful for companies experiencing seasonal sales, rapid growth, acquisitions, mergers and restructurings.  The three most important qualifications for an ABL revolving line of credit with CSI Financial include:

Companies generally turn to asset-based lending when a bank won’t approve a traditional line of credit, or they have needs that are outside the realm of what traditional banks can offer.  That doesn’t mean they are experiencing difficulties.  Very often, those companies are actually fast-growing and profitable.  When a bank typically determines the size of a credit line, it typically looks at sales over the past 2-3 years. But for a growing company, last year’s sales are not a good indicator of what it needs this quarter or beyond.

With ABL, there are no onerous requirements from the bank, such as high credit scores, lengthy business history, and well-defined business plan for the next 3-5 years.  The ABL line is designed to allow a growing company to maintain higher debt-to-worth ratios that are necessary during high-growth periods.  ABL also offers flexibility, and can increase based on your business size and needs.  It can also increase your borrowing capacity, especially if you are a company with less predictable earnings and cash flow.  And best of all, you only pay interest on the funds you draw.