ASSET BASED LENDING
What is it?
Asset Based Lending refers to a business loan 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, Equipment and Inventory. Asset Based loans 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. Asset Based Lending 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 Asset Based Lending work?
SouthStar Capital will establish a revolving line of credit (revolver) to maximize the availability of working capital from the company’s asset base. The borrower then grants SouthStar a security interest in the items being used as collateral, such as Accounts Receivable, Equipment and Inventory. 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.
When the borrower needs additional working capital, they request an advance, and the capital is sent directly to the borrower’s bank account. The borrower can request as little or as much capital, depending on what their needs are at any given time. This allows for control of the amount of capital borrowed, thereby lowering the cost of financing. As the borrower manufactures or acquires new inventory, and as they generate receivables from sales, these new assets become available for inclusion in the borrowing base. The line of credit is then paid down overtime by collecting on inventory and outstanding receivables.
The SouthStar Advantage
- Same day approval/closing in 2-5 days
- Same day funding on invoices
- Turn your assets into working capital
- Deal directly with decision makers
- Control your cost of capital by only using our ABL services when needed
- Challenged credit is a non-issue
- Years in business is not a factor
- Assigned account team for your company
- More access to capital than a traditional line of credit
“As they explained to me how an asset-based line of credit works, they showed me how I can manage my money real time. I was hooked! I have the cash I need and the control I require. Thanks for listening to me and understanding my individual needs!”
– Ron, President and CEO of an Engineering Firm