In today’s asset-based lending business there is more competition over tougher transactions than ever. Many of the prospects we see are struggling companies coping with losses over recent years. Many have instituted turnaround plans that focus on expense cuts, but often the success of the turnaround is also dependent on an increase in sales. With the economy growing slowly, this adds to the difficulty companies are having in getting financing.
Some asset-based lenders are taking a more proactive approach to structuring transactions. While trying to keep their collateral position strong, lenders recognize the need to allow enough availability of funds to enable their client to grow. For example, transactions with heavy customer concentrations might, in some cases, be structured with more involvement from some of the account debtors. This may be easier if the client is an important supplier or a critical vendor.
Instead of just using a traditional asset-based format, some clients might take advantage of a lender’s ability to factor some of the receivables or work with a lender that is also willing to look more aggressively at making inventory and term loans.
While there is no ‘silver bullet’ when a company is in need of financing, it is important to keep in mind that a good ABL lender does not offer a one size fits all product, rather it can tailor a program to meet its client’s needs.