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Wednesday, Sep 27, 2023


ASSET BASED LENDING TO FINANCE BUSINESS GROWTH By Stephen F. Moss Start-up, under capitalized and rapid growth companies, often find that their cash flow does not keep up with their expanding customer orders and other business opportunities. This often results in a serious “cash crunch”. Unfortunately, these same companies often find that when it comes to bank loans, despite the prospects of excellent future business, they simply do not have the assets or annual profits to support a bank line sufficient for their growth needs. Hence, in recent years, thousands of under-capitalized but growing companies have turned to the Commercial Finance Industry for asset based loans in order to support future growth. Commercial finance companies commonly make flexible business loans based upon the borrowers’ collateral base (business accounts receivable, inventory and equipment). The process of using a collateral base for an asset based loan will qualify many loan applicants who could not meet the stricter bank requirements which are generally based on balance sheet ratios and an analysis of past and future profitability. For a business growing faster than its cash flow can support, a flexible loan, based on the company’s own assets, can be the perfect answer. The reason for this is that commercial finance loan limits are usually based on a set percentage of the collateral base (i.e. 80% of eligible receivables, 50% of inventory). Therefore, the actual cash available to borrowers automatically increases during periods of increasing business activity, because the assets on which the loan is based are increasing. Thus, the borrower in effect is using his own business activity to create the availability of new funds with the lender to support continuing business expansion. Commercial finance companies calculate interest charges and fees by considering many variables including the borrowers financial strength, industry, sales volume, customer mix, and invoice size. These charges will be greater than the total charges of most banks, but nevertheless, for a business growing faster than its cash flow, a flexible loan backed by the company’s own assets may be the only practical answer to maintaining long term growth. Stephen F. Moss is the president of G & J Financial Services and A & M Financial Services. G & J provides financing to all industries, except construction and medical. For more information regarding accounts receivable financing, factoring, or receivables collection, contact either Steve Moss or Hank Kalin at 323-878-2023 or 818-881-1446.

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