Asset-based lending - the receivables exchange

Banks Still Not Providing Financing. How About Asset-Based Lending? Curt Queyrouze, SVP, Strategic Operations, The Receivables Exchange

The statistics continue to pour in regarding banks’ shrinking appetite for lending money – and not just to marginal borrowers, but even to very creditworthy companies. So, the burning question becomes: how do we pull out of a recession without available credit? Is there anyone out there picking up the slack?

Luckily, the answer is: Yes. Asset-Based lenders are among several expert niche finance groups that are actively lending money, growing their businesses as well as providing the fuel for growth for the multitude of small and midsize businesses (SMBs) that will pull us out of this recession. As in past recoveries, it will be small, growing businesses that will create jobs, increase employment and turn the tide in household incomes. SMBs are rapidly turning to Asset-Based Lenders, Peer-to-Peer networks, Micro-lenders and innovative new platforms, such as The Receivables Exchange. Moreover, they are having success.

According to The Secured Lender, “The U.S. asset-based lending industry grew by 8.3% in 2008…representing the seventh consecutive year of growth.”                                                                            

While statistics are not available for some of the newer financing vehicles, anecdotal evidence suggests even stronger growth patterns for many of these newer capital sources. In fact, The Receivables Exchange has experienced 300% quarter-over-quarter growth in volume since the beginning of 2009.

To source new avenues of capital, business owners must be diligent and creative. Industry resources such as the Commercial Finance Association and even online search engines can be useful tools to find asset-based lenders that operate in your area. Not only will you be able to find lenders who are open for business, you may even find that this new solution ends up being better for your business than your traditional financing relationship. Many asset-based customers never return to traditional lenders. Companies like the flexibility in structure and the consistency of credit terms that asset based lending and these alternative funding sources can provide. Flexibility is also the name of the game for the new paradigm lending resources, allowing you to throw away the loan covenants, personal guarantees and complex legal documents.

Asset-based lenders are already working hand-in-hand with companies like The Receivables Exchange to maximize the amount of liquidity derived from a company’s working capital assets. Asset-based lenders can construct a borrowing base that meets their credit criteria and allow a company to auction receivables over the Exchange that are ineligible for ABL borrowing. An asset-based lender will typically lend 75-85% against these accounts receivable. The borrowing base will exclude certain receivables from that eligibility calculation, such as foreign accounts, amounts due from the government, accounts in excess of pre-set concentration limits, etc. All of those accounts can be auctioned over the Exchange; thereby, improving liquidity for the customer, reducing dependence on borrowed money and reducing the leverage of the customer. This strategy also makes it easier to comply with loan covenants. The end result is a win-win-win for all parties!

In addition to the flexibility that these new financing sources provide, another development helping to fuel alternative financing stems mostly as a result of the CIT crisis becoming front-page news. Now more than ever, companies are realizing the critical need to identify multiple sources of capital. Reliance on a single source of capital means that you also bear the brunt of a single point of failure if that source falters. Cash flow is the lifeline of any company and should not be tied up in any one institution. All of your financial eggs in one basket is never a good thing.

Customers taking control of their financing is a positive for the companies and the economy as a whole. This development has been the key to the longevity of asset-based lenders and is fueling the rapid acceptance and growth of these new-paradigm capital providers. After all, shouldn’t your focus be running your business and not worrying about complying with complex financial instruments that were the building blocks of finance for the past 30 years?

Join the movement by exploring for yourself these new funding resources and you will likely be pleasantly surprised at how easy managing your working capital can become. And, more importantly, we think you’ll like the difference you’ll see on your bottom line.

About the Author: Curt Queyrouze is SVP, Strategic Operations at The Receivables Exchange. He brings more than two decades of experience in the banking and financial services industry and 12 years in asset-based lending at PNC Bank.