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Asset-based lending refers to loans secured by a wide variety of assets. Businesses can borrow money using the liquid, current assets of the company (such as accounts receivable and/or inventory) or the fixed assets of a business (such as plant, property and equipment) as collateral. As an asset-based lender, we rely on the value of the underlying collateral to minimize the loan’s credit risk. Asset-based loans also can include equipment loans and real estate mortgages. Commercial finance is the term most commonly affiliated with the industry group of lenders that provides all types of asset-based loans to business and commercial borrowers. Asset-based lenders are sometimes referred to as secured lenders.
An argument could be made that the people are the institution when it comes to lending money. A good working relationship with your lender is important because you will be interacting regularly, in all likelihood every day. Make sure you are comfortable with the people and the organization. Are the people you propose to work with innovative and knowledgeable? Are they part of an organization that is committed to asset-based lending? If your lender does not have a specific product to suit your needs, will it be able to create one for you? As your business grows and changes, will your lender have the resources to address your evolving capital needs? Is your lender financially stable? (Its stability is directly related to its ability to raise money and, therefore, to your ability to borrow money.)
The cost of closing can be driven up by a number of factors, many of which you can control. For example: extensive negotiation over terms common to asset-based loan contracts; pushing the structural limits of a given type of loan; selecting a lender that makes incrementally more stringent demands; and using a law firm unfamiliar with asset-based financing.
The following suggestions can help speed the process and minimize cost:
Asset-based lending calculates interest rates on the loan balance rather than the collateral balance. Generally, financing costs are significantly lower than factoring. The most important difference between asset-based lending and factors is that asset-based lending normally does not require notification of assignment to a borrower's accounts. Additionally, asset-based lenders focus on the borrowers, helping them be successful whereas factors focus primarily on the accounts receivable debtor.
Accounts receivable financing can enable a company to increase inventory, finance growing sales, meet payroll and operating expenses, purchase new equipment and take advantage of trade discounts. Furthermore, accounts receivable financing provides growth and capital as borrowers can borrow immediately on sales.
CapitalSource's Asset Based Lending group customarily confirms financial and collateral information provided by the company in order to support ongoing loan requests. There are two basic types of confirmation: