ABL asset backed lending is the practice of loaning money with the backing of business assets as collateral. Companies looking to maximize their borrowing capacity find an abl loan as an attractive funding option because of it’s typically lower interest rates and higher chance of approval.
Using asset based loans, a company can get access to immediate working capital by putting up assets like accounts receivable, inventory, and equipment. This enables companies to remain liquid and still qualify to receive funding.
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There are several reasons a business would consider applying for a business loan, especially an asset backed loan, over capital-based lending options. The goal of ABL loans is to turn a company’s assets found on their balance sheet to cash that can be used in other areas of the business and allow overall growth. A business may choose to use an ABL loan to:
Wisco Capital can get you approved today for an asset backed loan, and anytime you need additional financing, they’re there to help. Their multi-loan approval ensures that they have your back every time.
There are many different types of collateral options available to a company in need of an ABL loan. But, some collateral options are weighed heavier than others. Here are the common types of collateral that are used to back asset based loans:
An invoice is created and sent to a customer once services have been rendered. These invoices are the primary asset that’s used for asset based lines of credit or an asset backed loan. Typically the loan to value (LTV) averages around 90% of the amount invoiced. Variables such as the time it takes the customer to pay, credit strength of a customer, and payment terms of the sale might be used in calculating the advance rate on an invoice.
A purchase order is issued after a customer places an order that outlines what they have purchased. The order date, goods to be shipped, price per unit, etc. are all items that are listed on this purchase order. An ABL financing lender will review the creditworthiness of the customer and other factors to better understand the customer and determine the value of the purchase order.
Loans based on inventory are great for certain types of high-inventory businesses. ABL loan lenders look at what they can sell of a business’s inventory if they default on their loan. Factors like the types of goods, storage location, and ease of selling the inventory are considered when determining the value.
Asset backed loan lenders can determine the value of machinery and equipment by looking at the condition, make, model, and year. The lender looks at what value they can sell the items, or assets, for if the borrower defaults on their loan.
Working CapitalTransportation Company
Merchant Cash AdvanceBar Restaurant
Line of CreditPPE Wholesale
There are other reasons that a business would consider asset based loans. Companies during certain times in their life cycle may also seek out an ABL loan to achieve certain goals.
High Growth Business - These are companies experiencing high levels of rapid growth that are constrained due to capital. During this period, a business will have an increase in sales and invoices from those sales. Invoices or accounts receivable are one of the main assets that are used in ABL asset based lending. Since a business that has more sales has more invoices created, they have more accounts receivable that can be put up as collateral for an asset backed loan. During this period of increased sales, there is typically a need for new machinery, inventory, and equipment. All these items are considered collateral and can be used by an ABL loan lender.
Stable, Firm Business - When a business has reached a stable period, there is generally a great upswing that can be realized through restricting debt using asset based loans. It is common for these companies to use traditional or conventional loans that have low-interest rates but have limitations in the liquidity they offer. This can ultimately restrict the company’s growth. By leveraging the equipment, inventory, and accounts receivable through ABL financing, a company can remove these limitations of their existing loan.
Distressed Company - There are generally few choices for a business experiencing distress when cash flow prevents it from using a traditional loan program. An asset backed loan in these cases is a great option. By using an ABL loan such as a line of credit, a business can make interest-only payments so their cash flow is not so tied up in repayment. Typically, a distressed company has tight cash flows which make it difficult to make loan repayments on the principal and interest. Asset based loans can solve this problem with interest-only payments.
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