cking Flexible Capacity: Three Tips to Engage Asset-Based Lenders
Asset-based lending’s (ABL) true value is its flexibility and creativity.
Businesses, particularly those in special circumstances, can access new capital sources with the ABL framework. ABL relies on asset value of the company rather than strictly financial performance metrics.
Although there is inherent flexible in ABL financing structures, astute business leaders know that additional flexibility and liquidity for their businesses can be found quickly when they are prepared before engaging with lenders.
We will dive into three strategies to engage asset-based lending to create a strong financing partnership. For those who want to learn more about the ABL eco-system, we also offer detailed resources.
1. Set the Right Foundation
From the initial contact to a successful relationship with a asset-based lender, clear communication, transparency and prompt, detailed responses to information requests are essential. Businesses that are facing difficulties must be honest. Asset-based lenders are familiar with the financial challenges that businesses face and have experience in helping them overcome these obstacles.
Your trustworthiness is demonstrated by your ability to respond quickly and clearly to lender requests for information. The ability of a borrower to evaluate the credibility of asset-based lending, and reciprocate through transparency and collaboration, creates successful and lasting partnerships.
2. Mastering the Financial Performance Narrative
The lending teams appreciate detailed, organized, and accessible monthly reports. Comprehensive financial information packages must include full and detailed financial statements, cash-flow analysis (including 13-week projection ) and management’s discussion of the results.
Reviewing and discussing your financial performance is an important opportunity to build confidence in your asset-based lender. A strong narrative and insight into the financial health and potential of your company can help you build a relationship.
Asset-based loans are often sought by businesses in special circumstances. The lending decision will be based on how well you can educate the lending team, tell them your plan for steering the business to success and explain market forces and performance fluctuations.
3. Understanding your Collateral Base and Borrowing Basis
Assets that are typically pledged as collateral in order to establish asset-based credit facilities include accounts receivables, inventory, machines and equipment, real estate, and machinery. Asset-based lending is based on the principle that your borrowing base directly impacts your quality and value of assets.
Borrowers need to be aware of the current status and accuracy of their collateral. It is important to provide the correct background on your collateral, as this is one of the elements that borrowers can control. The borrowing base formula is used by asset-based lending companies to calculate the amount of funding that a borrower may access at any given time. It applies an advance rate on the collateral value.
As well as maintaining accurate and up-to date documentation for collateral, the company’s leadership should also be prepared to discuss the nuances and nuances in accounts payable, and Inventory practices and controls. These discussions will provide an opportunity for your company to demonstrate its commitment to effective working capital management, and to optimize your borrowing base.
Accounts receivable Management questions include discussion about credit policies, past-due balances, customer concentrations and other factors that impact statements receivable. Inventory Management will be discussed, including elements like forecasting, categorization and supply chain dependency, tracking and counting and technology integration. Businesses should be ready to have their collateral examined (field exam).
Bringing it all together: Engaging ABL Lenders
This financing model is a combination of art and science. This financing model is designed to fit the needs of your specific business.
ABL offers creative and innovative lending options that are not available in the traditional lending market. Following the above tips, businesses will be well-equipped for a positive impact on their financing success.
For more information, visit our resource center , or download our Guide for Achieving Asset-Based Lending Benefits, located on our homepage at www.gibraltarbc.com.
Contact our sales team if you would like to discuss your options with someone or learn more.
