Asset Based Lending
Asset Based Lending refers to a business loan or credit line secured by using a company’s assets as collateral. This allows a company to immediately access the working capital available in their assets, such as Accounts Receivable, Machinery and Equipment, Real Estate, and Inventory. Asset Based financing can be structured as revolving credit facilities, allowing a company to borrow from assets on an ongoing basis to cover expenses or investments as needed.
This type of financing is used by companies that need working capital to operate or grow, in some instances these businesses may have reached the limit on their bank line of credit. Often, companies that implement ABL have cash flow problems, many of which stem from rapid growth. Asset Based Lending facilities help companies manage their rapid growth issues and position them in a favorable position for future growth.
How Does it Work?
A preferred lender of Webb Capital Advisors will establish a revolving line of credit (revolver) to maximize the availability of working capital from the company’s asset base. A value is given to each asset, and a percentage of the value of the asset is made available to the borrower as a line of credit. A typical revolver structure will make available 90% of the Accounts Receivable, 75% of Equipment, and 50% of the Inventory value.
How Does it Benefit Your Business
When your business needs additional working capital, you request an advance, and the capital is sent directly to the your bank account. You can request either a small or large amount depending on what your needs are at any given time. This allows for control of the amount of capital borrowed, thereby lowering the cost of financing.
As receivables or inventory grows, these new assets become available for inclusion in the borrowing base. This is financing that truly grows along with your business.