ABF is a financing method that is driven by the assets of companies. Assets include current assets, such as accounts receivables and inventory, and fixed assets, such as plant and machinery. ABF allows an SME to utilize its own assets to meet its short, medium and long term funding needs. Asset based lending or asset based financing refers to loans secured by a wide variety of assets. Businesses can obtain asset based lending by using the liquid, current assets of the company (such as accounts receivable and/or inventory) or the fixed assets of a business (such as plant, property, and equipment) as collateral. The asset-based financial services industry has burgeoned in recent years, and small businesses have fueled much of its growth. Although a stigma is still associated with using your assets to get cash, this type of financing is becoming more popular. The asset-based financial services industry has burgeoned in recent years, and small businesses have fueled much of its growth. Although a stigma is still associated with using your assets to get cash, this type of financing is becoming more popular.
[...] Terms It's variable based on the productive cycle, including the term of the product commercialization and the capacity of payment of the company: In cyclic cultivations the average term is from 8 to 10 months In credits for fowls it could be until 18 months In double annual cycles and in bovine cattle producer of meat, the time limit will not be able to exceed of two years Benefits The amount, term and amortizations of the credit are adapted to the cash flow generation, productive cycle and necessities of each client Costs reduction of contracting Feasibility to establish agreements with a 3 year term (if the client fulfills the agreement's conditions) Opportunity and agility in the granting of the resources The products obtained with the credit are secured as collateral Inventory Secured Facilities "Cover your necessities in the acquisition and maintenance of inventories, imbalances of treasury and obtain the resources to acquire raw material for the production" "Also obtain a financial product that allows you to finance your sales and simultaneously represents an instrument for the control of supplies in the commercialization of your products" Benefits Reduced financial cost if compared with a clean facility It is an attractive, simple and safe financing for the companies by the acceptance of a collateral with real value It is a revolving credit that provides immediate liquidity, proportional to the value of the goods granted in collateral The client can be paying the credit as requires the merchandise, without prepayment restrictions No need of compromising fixed assets in order to obtain short term facilities It does not incur in additional expenses such as public registry inscription Allows liability diversification and increases leverage with different financial institutions The client obtains security and quality in the handling of its inventories through General Warehouse Deposits, which additionally offers logistic and fiscal storage benefits for importers, foreign suppliers and exporters It is a short-term credit that consists of granting a percentage of financing of the commercial value of the goods that the clients give to the Bank as collateral through a warehouse bond. [...]
[...] "The key questions are: What is the value of the assets? How strong is the quality of those assets? And how well does the company manage those assets in terms of information available?" says Joe Kenary, managing director of corporate finance for CapitalSource Finance LLC, a commercial finance firm based in Chevy Chase, Md. For example, if the borrower is pledging inventory and accounts receivable, its actual inventory levels should reconcile with the numbers in the general ledger, as should the age and amount of its A/R. [...]
[...] Asset Based Lending / Structured Finance Asset based lending and structured finance is the hottest sector of the invoice discounting market. Lenders have realized that they can add value to a customers requirements by looking beyond just the debtor book. By including a company's stock, plant and machinery and property they can provide much bigger revolving business lines of credit. By flexing the facility in this way advances up to 150% of debtors can be achieved. This type of finance is particularly suited to: Management buy-outs (MB0) Management buy-ins (MBI) Acquisitions Mergers Re-finance of existing bank overdraft Turnaround situations In these situations more funding can be released than through a conventional overdraft. [...]
[...] Under a mortgage (for real property) or a Security Agreement (for personal property), if you default on the loan, the lender is able to foreclose upon the asset and sell it to repay the money owed to the lender. If you are required to provide security, try to limit the amount you have to give to secure the loan. Make sure that when the loan is repaid, the lender is obligated to release its mortgage or security interest and make any governmental filings to acknowledge this release. [...]
[...] Review of SBA Form CAP-1050 ê: Maintaining the revolving feature in asset based lending is the primary responsibility of the Lender. When a loan is not revolving in relation to its cash cycle or actual need, increased servicing will be required to re-institute the revolving nature of the loan. Servicing personnel will review the Semi-Annual Disbursement Reports (SBA Form CAP-1050 ê) to determine that the line is revolving in accordance with the terms of the Authorization and to be assured the borrower is correctly utilizing the line in relation to its cash cycle. [...]
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