| Asset Based Financing |
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| TARGET USER: |
Companies with revenues of up
to $20,000,000. This product can be
for manufacturers, wholesalers, distributors, service companies and
others. The target users typically do
not qualify for traditional financing due to higher than acceptable leverage,
a high rate of sales growth or having been in business for a relatively short
period of time. |
| LOAN TYPES: |
Loans under this structure can
be up to $5,000,000. The loan is
usually structured as a line of credit secured by accounts receivable and/or
inventory. Advances under the line of
credit are based on amounts of up to 75% of accounts receivable and up to 50%
of inventory. Borrowers will need to
supply monthly or even daily detailed reports verifying the value of the
accounts receivable and inventory base. |
| HOW TO APPLY: |
Borrower
will need to provide, at a minimum, three years of fiscal year-end financial
statements and the most recent year-to-date financial statement. The borrower will also need to provide a
current detailed listing and aging of all accounts receivable and
inventory. Once this information is
reviewed, additional information may be requested. The owner(s) of the company typically will
be required to personally guarantee the loan.
The borrower can make applications to medium and large sized financial
institutions as well as private asset based funding companies. |
| WHO’S NOT ELIGIBLE: |
Those companies that do not generate accounts
receivable and inventory levels during the ordinary course of business. |
| ADVANTAGES: |
u |
Provides
a source of funding for those companies that are not able to secure
traditional financing. |
| u |
Provides a quick source of cash on a daily basis. |
| u |
Allows the company to leverage existing assets to sustain
continued growth. |
| u |
Establishes a relationship between a financial institution and
the company, which will assist in securing future borrowings. |
| DISADVANTAGES: |
u |
Cost
of borrowing is typically higher than traditional financing due to risk and
monitoring requirements. |
| u |
Requires detailed financial information and reporting on a
monthly, and sometimes daily, basis. |
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| Source: Economic Development Council |
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| Alternative
Finance Committee, 2001 |
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