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Asset-Based Lenders Serving a True Need in Today’s Marketplace

by Tracy Eden

Most business owners will tell you that it’s still pretty rough-going out there when it comes to obtaining financing. This is true despite improvements in the economy and efforts by the federal government to jump-start business lending among community banks.

In such a tight credit environment, the importance of the role played by asset-based lenders has increased exponentially. They are a vital cog in the economy right now, says Michael Miller, a Director with CFO 911 (cfo911solutions.com) in Playa Del Rey, CA. I cant imagine what the economy would look like right now without them.

The credit crunch has taken a difficult situation and made it impossible, adds Jennah Purk, President of Purk and Associates (purkpc.com) in St. Louis, MO. I regularly refer my clients to asset-based lenders.

Alternative Financing Solutions

Asset-based lenders provide creative business financing solutions for companies that don’t qualify for traditional bank loans and credit lines, whether this is due to their start-up nature, rapid growth, or financial ratios that don’t measure up to a banks requirements. These solutions typically include asset-based loans, accounts receivable financing and factoring.

In 2009, factors provided $140 billion in financing, up slightly from the year before, reports the Commercial Finance Association. And total outstanding asset-based loans increased 1.25 percent in the fourth quarter of 2009.

Banks today have reverted back to a 1980s and 90s model with regard to financial ratios, says Albert Christiansen, a Partner with B2B CFO (b2bcfo.com) in Phoenix, AZ. That’s why asset-based lending is so important right now. There are many companies that cant meet a banks lending criteria, but they need to keep their cash flowing.

Larry Potashnick, the CEO of Capital Performance in St. Louis, MO concurs: Bank underwriting guidelines are getting tighter and tighter. The good thing about asset-based lenders is that theyre able to plug a pretty big financing gap that exists right now: Businesses that aren’t quite creditworthy enough to borrow from a bank, but they still need critical working capital in this tough environment.

Manufacturers and distributors with creditworthy customers are often good candidates for asset-based loans and factoring, says Purk, because the financing is based on receivables, not inventory. Most of my clients who have done this kind of financing have been light manufacturers were startups, or where the owner didnt have sufficient personal assets to pledge as collateral.

Banks don’t want to repossess a warehouse full of steel plates, car parts or frozen eggrolls, she adds. But an asset-based lender can convert accounts receivable to cash quickly, and cash is king.Christiansen tells of a distributor with a strong business model and a good understanding of its market needed a cash flow boost to weather the economic downturn. The company got financing from an asset-based lender provided the working capital necessary to keep going. They grew from about $7.5 million in revenue in 2008 to $10 million last year, and they should hit $13 million in 2010. This growth would have been impossible without asset-based lending.

A Working Capital Boost

Asset-based lenders can also help companies have bank loans or lines of credit but need additional short-term working capital to take advantage of opportunities, like an unexpected large order. It can be hard to get a credit line increase in this environment, says Miller. Too many companies arent aware of how asset-based lenders can help them in situations like these. Ive referred many clients to asset-based lenders and will continue to do so.

Asset-based lending is often temporary, providing much-needed working capital during a start-up or transition phase until the company has enough financial history or a strong enough balance sheet to become bankable. Purk says, banks usually want to see three-to-five years of financial statements from potential borrowers.

Asset-based lenders serve a clear need in the marketplace right now, says Christiansen. Some of my clients have improved their cash flow greatly by taking advantage of these types of financing.

To learn more about alternative financing solutions provided by the Commercial Finance Group, please contact us at (800) 757-5195. You can also learn more by visiting: http://www.cfgroup.net.

Tracy Eden is the National Marketing Director for Commercial Finance Group (CFG), which has offices throughout the U.S. CFG provides creative financing solutions to small and medium-sized businesses that may not qualify for traditional financing. Further information on the company and its services offered can be found at http://www.CFGroup.net. Tracys direct email is tdeden@cfgroup.net