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Asset Based Financing (250K - $1Million)
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Posted On: Monday December 29th, 2003 at 12:00am EST
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What is Asset Based Financing?
Asset Based financing is a loan product that is secured by specific accounts receivable. Financial institutions, specializing in Asset Based financing, advance funds to your company based on the “quality” of your firm's receivables. Funds will only be advanced on "commercial receivable accounts."
The loan amount is influenced by the quality of the commercial receivable, aging and turnover of the receivables.
Asset-Based Line of Credit may be considered nontraditional lending but it is not a Factoring Line - where the receivables are sold to the financing entity at a discount.
Repayment Terms/Advance Rates
The Asset Based Line of Credit (Line) will generally be set up with an annual maturity date. The Line may be either a Revolving Line or with a formal borrowing base with advances made on eligible account receivable. Advances may range from 75% to 85% of eligible business receivables, depending on the quality of the receivables.
The Line will exclude receivables over 90 days from the invoice date, contra, foreign accounts and possibly government receivables.
How can you include government or foreign receivable as eligible receivables?
Government receivables may be included if an assignment of claim is taken for each governmental agency.
Foreign receivable may be included if covered by foreign credit insurance (such as EXIM Bank's Export Credit Insurance Program).
Inventory advances may also be made up to 50% or higher provided the inventory is a finished product or raw material that is readily marketable.
Collateral
An asset-based line will be secured by account receivable, inventory and possibly other business assets.
Financial Statements Required
Financial statements and personal tax returns for the past three years, interim financial statements (current within 90 days) and personal statement, if a guaranty is required. Monthly or quarterly accounts receivable aging and payables may also be required.
Other Requirements
Generally, the financial institution will require an audit (annually or possibly quarterly) to determine the quality of the collateral and the company's accounting practices. There is a fee charged since this requires an independent audit by a third party. |
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