A number of small flexible and focused asset-based lenders have entered the commercial finance scene since 2008. Although 2008 seems like an eternity ago, many legacy asset-based lenders left the market either because they had wholesale lenders who stopped their relationships or because they suffered deep losses. That left a void in the asset-based lending space.
Thankfully, a number of smaller more flexible asset-based lenders have emerged to close the gap and the commercial finance industry has seen some serious changes since 2008.
New breed of asset-based lenders like smaller loan size
There are a significant number of smaller lenders who have established themselves where small businesses couldn’t find an asset-based loan. The gold standard for minimum asset-based loans was $1 million in funds employed at all times. The new “standard” is $500,000 or less of funds employed. Collateral is typically accounts receivable and inventory. Some asset-based lenders will allow you to use equipment as part of their collateral. The new breed of small, sometimes hard-to-find asset-based lenders will take a much smaller transaction. Now smaller companies can tap into this type of credit facility, which is especially helpful when they need help finding raw materials and finished goods inventory.
Smaller asset-based lenders are finding vertical markets
Although all lenders have to be careful not to have too high a concentration in one type of industry, the new breed of ABL lenders has shown they like to make loans in industries they know best. One lender for example likes to finance frozen fish, fresh produce, and goods imported from South America. They like those businesses because they have had success with them and feel comfortable with these products in case they have to liquidate inventory quickly.
New breed of small asset-based lenders will finance more risk
Asset-based lenders traditionally have not financed riskier types of companies because their fee structure was so low. The new breed of Asset-based lender may be more expensive than the large asset-based lenders like Wells Fargo Business Credit or Bank of America, but they will take on more risk and are still less expensive than most factoring companies.
Niche asset-based lenders more flexible
ABL lending has traditionally been used for acquisition and growth capital purposes. Smaller, more flexible asset-based lenders will finance work in process and raw materials used in manufacturing or fabrication.
As the economy in some parts of the country is rebounding, small companies still don’t have access to the amount of credit needed to replenish their working capital though traditional banking. Thankfully commercial finance companies have been able to help. The new breed of ABL lenders can bridge the gap for businesses having sales of $6 million or more that need financing for both accounts receivable and inventory.
The next segment of this two-part series will explain what to look for when searching for a small ABL lender.