There are a number of reasons why a company may not want to take a term loan. They may want to pledge personal collateral, find it difficult to obtain this more traditional form of financing, they may simply not want to accept the terms that are available, or they may simply prefer these non-traditional financing options as a way to meet their financing needs. Whatever your situation, if you're looking outside the term loan box, you should look at these potential solutions.

Accounts Receivable Financing

A/R financing is a flexible line of credit solution available to most businesses. This type of financing leverages the money you are due to receive from invoices you have sent to your customers. A/R financing helps bridge the gap between your cost of sales  and when you get paid for your goods or services.

Asset Based Lending

This line of credit is secured by an asset that your business currently holds. Asset based lending is a line of credit, meaning that you can use as much or as little of your potential credit as you select up to the value of the collateral pledged. You can change it monthly, weekly, or even daily depending on your needs.

Factoring

In this type of financing, a third party factor actually purchases your unpaid invoices. You receive a portion of the value upfront, with the rest of it being delivered, less an administrative fee, when your client makes good on the debt. Factoring may be traditional, where the factor fully purchases the invoice and assumes both the credit risk and responsibility for collection of the receivable. Or  on a recourse basis where the receivable is sold back to the seller after a certain period of time elapses. Unlike other types of financing there are less restrictive covenants inherent in factoring transactions.

Our West Palm Beach office is on the move Friday March 30 to larger office space to accomodate their growth, and to become more closely located to the South Florida business community. They have added to staff, and have increased their product offerings which include ledgered asset-based lending, revolving lines of credit managed with borrowing base certificates, and most recently equipment term loans ... and the recourse and non-recourse factoring they have provided for numerous years.

Those of us in Michigan are looking forward to visiting visiting them in their new offices... it's raining cats (and dogs!) here today!

Asset-based lending is a form of line of credit, and is sometimes called a revolving line of credit. In essence, asset based lending looks at your company's current assets, and then provides you funds up to a certain amount depending on the value of those assets. Because asset based lending is a line of credit, the the borrower and lender will have an ongoing relationship and  will be in fairly close contact. The borrower should be able to receive more funding as needed, up to the pre-agreed limit. In addition, it may be possible for the borrower to increase their credit limit if additional assets are acquired.

Defining An Asset

Technically, any asset could be considered for asset based lending. In that sense, mortgage loans are a form of asset based lending – but they are rarely referred to as such. In most cases, ABL involves receiving financing against the current assets such as  accounts receivable and inventory. The idea is to obtain financing based on expected money to be paid once invoices come due at a later time. The company receives funds from a lender now and turns over the funds from those invoices once they do become available. Asset based lending can sometimes involve other assets such as machinery and equipment, but accounts receivable is the most popular.

A Highly Reactive Line Of Credit

One of the common characteristics of asset based lending is its ability to increase or decrease as a company's invoices increase or decrease. Because the amount that can be borrowed is determined by the expected value of the asset, i.e. the amount expected from invoices, higher or lower invoices thus lead to higher or lower levels of funding. This is particularly useful to seasonal business, high growth businesses, or companies that have a opportunity to grow. Because asset-based lending is typically more focused on collateral and less on the financial performance of a borrower it also creates opportunity for highly leveraged borrowers or companies in turn around to arrange liquidity.

As with all types of funding, the details of asset-based lending can and do vary between different companies. To learn how Crestmark can help your company, we encourage you to contact us via phone or email for more information.