Asset-Based Lines of Credit

Calculator and Pen doing accounting

Businesses with assets such as commercial accounts receivable, inventory, equipment, real estate and intellectual property, can use those assets as collateral for a line of credit. That is the basic structure of an asset-based line of credit (ABL) or asset-based term loan. In many cases, the lender will provide a line of credit backed by the AR and inventory plus a term loan backed by machinery and equipment and real estate.

Lenders determine the line/loan amount they’re willing to provide based on the quality of each type of collateral. Lenders look at the following asset characteristics:

Accounts Receivable: credit quality of customers, age of invoices, customer concentrations and dilution

Inventory: type of inventory (finished goods, work in progress, raw materials), age, liquidation value

Machinery & Equipment: liquidation value (which captures age, usage, value separate from the current business)

Commercial Real Estate: appraised value

Other Assets (mainly intellectual property): third-party appraised value

Some of our lenders will provide “stretch” senior and junior loans to increase working capital beyond what the hard assets will support. Speritas Capital can also bring in subordinated lenders to fill gaps in loan availability and get a refinancing done. The subordinated lender can provide an overadvance on accounts receivable or a mezzanine loan.


Transaction Sizes

Transactions range from $1 to $25 million. Accounts receivable and purchase order financing deals can be smaller if there’s growth potential, starting at $100,000.


Profitability Requirements

Positive net income or even positive EBITDA is not necessarily a requirement to secure an asset-based line of credit. Lenders are willing to make adjustments to stated earnings and will consider the impact of new customers, growth and expense reductions on earnings going forward.


Time in business

Borrower age and size are big factors for many lenders so we have to take early stage companies to lenders who are comfortable with projection-based credit underwriting.


Borrower Growth Rate

Companies in the rapid growth / scale up mode base their ability to repay their loan on projections. Some lenders can rely on well-supported projections and some cannot.


ABL for Acquisition Financing

Investors can use asset-based credit facilities to acquire companies. Lenders will review the target’s assets and earnings and determine the amount of financing which will be available to the buyer in the acquisition.


How Does Speritas Capital Help?

Because Speritas Capital is a debt advisory firm, we have access to a wide variety of asset-based lending structures. We’re not beholden to any one lender or structure so we can use our creativity and experience to design a structure that truly fits the needs of our clients.

We work with clients to develop a financial presentation which properly represents the status of the turnaround, the strength of the collateral pool, and the sustainability of the business. For companies in turnaround mode, we can help them test whether they’re ready for the bank ABL market or whether they need to focus on the private lender market.

We can also arrange financing for each asset type separately. For example, a direct to consumer business will not have commercial account receivables but will need to maintain inventory. This is where inventory lenders can add value. Minimum size for inventory loans is $200,000 with no maximum.

So whether you’re a smaller firm looking to grow through accounts receivable or purchase order finance, a lower middle market firm looking for more liquidity or a lower cost of funds, or an operating company looking at an acquisition, we can help you assess your options, introduce one or more lenders, and assist in structuring the deal.

Industries That Can Benefit from Asset-Based Lending

Many industries can take advantage of accounts receivable financing, including:

  • Manufacturing
  • Oilfield services
  • Trucking
  • Heavy construction
  • Solar energy
  • Information technology
  • Staffing
  • And many others!

Contact Us

You need a strategic, cost effective solution to your financing needs and a financing advisor you can trust. And one who never takes upfront fees. Let us put our decades of banking and structuring experience to work for you – contact Speritas Capital Partners about asset-based financing today.