Assets

Asset-based loans (ABLs), by design, are offered by financial institutions to higher-risk borrowers. As such, their covenants, borrowing bases, and audits are tightly enforced around credit agreements that can appear to be, and in many cases are, operationally restrictive, particularly to companies who have deteriorating financial results.

Because of its inherent characteristics, this form of credit instrument is most appropriate for small - to medium - sized companies who are well-managed, have good internal controls, and possess hard assets in addition to receivables, yet don't qualify for "cash-flow" type credit facilities. As these companies experience short-term growth. ABLs are a better option for accommodating growth versus other types of credit facilities. Receivables factoring, for instance, can become costly and inapporiate alternative if inventory is required to be built to support sales growth.

Because ABLs create liens on assets, they are a cheaper alternative to other forms of credit facilities, such as factoring, bridge loans, mezzanine loans, and purchase-order financing. In bankruptcy reoganizations, ABLs can be used effectively for both "exit" and "DIP" (debtor-in-possession) financing.

Asset-based loans are not for everyone. However, they are a sensible, cost-effective alternative for small companies who have outgrown more costly, transaction-based financing, and for medium-sized companies whose current risk does not warrant cash-flow type credit.

Executive Solutions offers over 300 years of sound business experience. We can help you determine the optimum financial structure for your company and help you implement it with the most appropriate financial institutions.