Revolving Line of Credit

Community banks, as a rule, don’t choose to lend to a non-profitable company strictly on the basis of assets coverage.  The banks want the “Borrower” to be profitable, even if the collateral coverage is strong.  

Asset based lending, frequently called “ABL”, is a type of loan that is secured by various types of collateral. Most asset-based loans are structured to work as revolving lines of credit, allowing the company to borrow as needed and on a continuing basis. 

Most ABL lenders will create a “Borrowing Base” using the weekly values and the formula below:

85% of current accounts receivable PLUS 30% to 50% of current inventories EQUALS Your Borrowing Base.

For example:  

$1,000,000 of AR * .85 = $850,000

PLUS

$500,000 of INVENTORY * .50 = $250,000

BORROWING BASE = $1,100,000

However, if the current loan with your community bank is $1,000,000, this would need to be paid and it would only give you $100,000 of working capital.

The financial partners at Select Capital can also leverage the value in your equipment and owner occupied real estate to provide additional capital using the formula below:

50% of owner occupied real estate PLUS 75% liquidated value of equipment EQUALS Additional Borrowing Base.

For example:

$1,500,000 of Owner Occupied Real Estate * .50 = $750,000

PLUS

$300,000 of EQUIPMENT * .75 = $225,000

ADDITIONAL BORROWING BASE = $975,000

If you use Select Capital for your ABL needs in this example, you would receive $1,975,000 in total funding compared to $1,000,000.

NOTE: A company only pays interest on what is currently being used on the revolving line of credit… this is not a term loan where you are locked into fixed monthly payments for the entire amount.  Use what you need to and payback when you collect receivables.

Asset-based loans can be used by companies in the following industries:

• Manufacturing
• Distribution
• Logistics
• Transportation
• Business Services

Asset-based loans can be used by companies in the following situations:

• Limited operating history
• Rapid growth
• Transition or turnaround
• Acquisition
• Recapitalization

Asset based loans are a great alternative for rapidly growing companies, or those that are highly leveraged, undercapitalized, in turnaround or recovery cycles, or otherwise not bankable. 

Companies that have cash tied up in raw material and finished goods inventory or that experience seasonality or significant gaps in cash outlay and cash receipts are also good candidates for asset-based loans.

Call us today to discuss your options with experienced owner operators here at SELECT CAPITAL