Leveraging the assets on a business’ balance sheet is a core part of the financing solutions covered by FBX Capital. Asset based lending (ABL) is a broad term referring to ways and means of borrowing cash which is backed and collateralised by the business’ assets.
Examples of assets that can be used as collateral include accounts receivable, inventory, equipment, machinery and commercial property At FBX, we have successfully completed transactions from rudimentary invoice finance facilities through structured transactions, as complex as cross-border syndicated borrowing base facilities.
Asset-Based Lending (ABL) is well-suited for a variety of business needs and situations:
Need to know:
M&A transactions can be complex and completion rates from letter of intent are under 50%. Of those that do complete, not all of them are success stories. M&A can be an absolute game changer for businesses, but it needs deep consideration. As advisors we suggest that business owners and entrepreneurs consider many things before entering into any transaction:
Common types of collateral include:
ABL is particularly beneficial for:
The repayment terms for an asset-based loan depend on the type of loan and the agreement with the lender. Generally, there are two main types of asset-based loans: term loans and revolving lines of credit.
Term Loans: These loans have a set repayment schedule over a fixed term. Payments are usually made monthly and consist of both principal and interest. The term can vary based on the collateral and the loan's purpose but typically ranges from one to five years.
Revolving Lines of Credit: This type of asset-based lending is more flexible. Businesses can draw down, repay, and re-borrow funds up to a maximum credit limit, similar to a credit card but secured by the company's assets. Interest is typically charged only on the amount drawn, and there may be a requirement to periodically "clean up" the line by paying it down to zero or a specified level before borrowing again.
For both types of loans, the specific repayment terms, including the interest rate, fees, and loan covenants, are negotiated with the lender and detailed in the loan agreement. Asset-based lenders may also require regular financial reporting and asset monitoring to ensure the value of the collateral remains sufficient to cover the loan.
Understanding the repayment terms and how they align with your business's cash flow and financial planning is crucial before entering into an asset-based lending agreement.