Q I'm working with a company that is receiving more orders than it can fill, given the cash available. What can it do if the bank turns it down for financing?
A One of your options is asset-based lending (ABL). Traditional bankers look at the historic profitability of a company and the strength of its balance sheet when deciding to make or renew a loan. While asset-based lenders consider these parameters as well, they also look at the strength of a company's assets, such as accounts receivable, inventory, machinery and real estate as a source of repayment. Here are some basic facts about asset-based lending:
• Asset-based lenders are willing to overlook poor operating results and higher leverage. They structure their loans so that even if the client goes bankrupt, they can liquidate the collateral and together with their fees, still have a profitable deal.
• The rates of asset-based lenders may appear higher than the banks', but the greater availability of an ABL loan can mean the difference between staying in business or suffering from a lack of cash.
• ABL lending is relatively new in Canada. Only about 5% of Canadian commercial loans are ABL, as compared to 50% in the US. This can give a company using ABL an edge to finance growth, or a turnaround.
Michael A. Oskroba (moskroba@textronfinancial.com) is senior director, business development with Textron Financial Canada Ltd.
