Surv Thriv Sept2009
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Transcript of Surv Thriv Sept2009
![Page 1: Surv Thriv Sept2009](https://reader035.fdocuments.net/reader035/viewer/2022081413/54675b45af79594f578b6066/html5/thumbnails/1.jpg)
Asset-Based Lending
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Banks & Private Equity Partners
Investment CapitalTraditional Bank Lines
Alternative Lenders
FactoringPO Financing
Asset-Based Lending
Early Stage Capital
Seed CapitalFriends & Family
Early Stage Investment
Ma
ture
Mid
-Sta
ge
Sta
rt-U
pFinancing Spectrum
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What is the difference between an Asset Based Lender and a
Bank?
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• Banks • Cost of funds is lower than ABL, due to less risk • Focused on financial strength vs. collateral• Positive earnings history often required • Personal collateral may be required
• Asset-Based Lender • Focused mainly on collateral and future cash flow • More reporting is required to manage the risk in an ABL• Real time monitoring of collateral • Higher rates on ABL deals• Confirmation process to verify receivables• A/R collections go to lock box
Bank vs. Asset-Based Lending
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Factoring
What is Factoring?
• The selling of a client’s accounts receivable to a factor in order to obtain funding.
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Factoring
How does it work?
• Factor makes a credit assessment on the payer• The client notifies the payer that the account has been assigned to factor• The client submits invoice, PO, and proof of performance to factor to fund• Factor verifies the delivery of product or service• Factor advances up to 90% of invoice amount• Upon payment, factor collects principal and fee and refunds balance (rebate) to client• May be either recourse or non recourse
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Factoring
What are the qualifications to factor?
• Sell to creditworthy payers
• Accounts receivable are fully earned
• The accounts can be confirmed
• There are no prior liens on accounts receivable or inventory
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Factoring
What are the pros and cons of factoring?
• Pros:
• Ease of qualification
• Fast access to cash after billing
• Credit and collection services
• Insure accurate billings
• Cons:
• Factor will be in frequent contact with payers
• Expensive relative to bank financing
• May involve future volume commitments
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Asset-Based Lending
What is asset based lending?
• A more traditional line of credit, closely monitored by the lender, that provides funding based upon the current level of accounts receivable and inventory
• The level of lender monitoring and control falls between that of factoring/PO finance and traditional lending, and cost fits into the same spectrum as well
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Asset-Based Lending
How does ABL work?
• The lender performs a field examination of the client to confirm the collateral value and clients ability to report accurately
• Collateral values, and therefore borrowing availability, are tracked perpetually using a borrowing certificate
• Availability declines when accounts are collected and increases when sales are made and inventory is purchased
• Monthly financial performance is monitored and quarterly field examinations of accounts and inventory are performed
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Asset-Based Lending
Qualifications for ABL
• Satisfactory accounts receivable. Creditworthy customers and a good collection history
• Satisfactory inventory. It must be marketable in its current condition• Reliable collateral reporting systems• Financial statements must demonstrate viability• Lender must feel confident that cash can be directed into the lockbox
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Asset-Based Lending
Pros and Cons of ABL
• Pros:
• Clients are able to borrow on inventory. Advance rates vary, usually in a
range of 30% to 50%
• It is less expensive than factoring or PO financing
• It is more traditional than factoring or PO financing, less possible stigma
from end-users
• Cons:
• Fixed administrative costs: field exams, commitment fee, documentation
charges and lockbox charges
• More reporting requirements and controls than traditional lending
• May involve fee to exit
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Who Provides Asset-Based Financing?
Factoring
• Very fragmented
• Lenders are starting to provide both
Asset Based Lending
• Finance Companies below $2,000,000
• Banks and finance companies above $2,000,000
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Thank You
Toby Dahm
Senior Vice President
Hennessey Capital
248.658.3208
Learn more at HennesseyCap.com