Businesses with larger transaction volumes and larger borrowing needs require custom solutions that meet those needs. altLINE’s Asset Based Lines of Credit provide a solution for companies that put a premium on flexibility.
How Does Asset Based Lending Work?
For many businesses, traditional lines of credit may prove too restrictive while factoring and other alternative financing products may feel too cumbersome. Asset based lines of credit are a useful tool for businesses that are interested in tapping into value locked in certain assets the business is carrying on its balance sheet.
Lenders underwrite Asset Based Loans by advancing capital against near-term assets like accounts receivable, inventory, and equipment. This differs from traditional lines of credit that are either based on the cash flow of the business or secured by more illiquid assets like real estate. Given the liquid, ever-changing value of the assets securing the line, Asset Based Lending requires lenders to develop specialized capabilities in underwriting and monitoring these lines.
Fortunately for borrowers, many traditional banks have developed Asset Based Loan products that allow them to lend to qualifying customers more affordably and efficiently than ever, so think about contacting your current lender before seeking out alternatives.
Don‘t Quality for Your Bank’s Asset Based Loan Program?
The reason atLINE exists is to assist borrowers who may not qualify for their current lender’s ABL solution. Rather than seeking out an entirely new banking relationship or engaging with an overly expensive independent financing company, altLINE complements and operates alongside a business’s current bank relationships.
With a different risk appetite that focuses primarily on a business’s A/R and the business’s customers’ credit profiles, The Southern Bank’s altLINE program can assist when many traditional bank ABL programs may not. This willingness to say “yes” combined with a bank cost of funds makes altLINE the best call to make when a business’s primary lender is unable to move forward.
How are Asset Based Lines of Credit Priced?
When a lender proposes any type of financing, they typically have an annual return that they’re looking to attain. When pricing an Asset Based Line, lenders will often include additional fees along with interest to meet their targeted return.
The most common costs and associated with an Asset Based Line include:
- Interest: Quoted as an annualized rate and applied to the borrowed funds outstanding. More often than not, the interest is quoted as a spread on Prime or LIBOR (e.g. Prime + 2.0%).
- Monitoring Fee: May also be referred to as a monthly service fee or lockbox fee. This fee can range from $500 per month to $10,000 per month depending on the size of the loan.
- Unused Line Fee: Typically charged each month to the average unused portion of the line. This percentage fee should be well below 1.0% and often falls between 0.10% and 0.35%. For example, if a business has a line of $2,000,000 and the average funds borrowed is $1,200,000 for a month, the lender may charge a fee of 0.20% against the average unused portion of $800,000, equating to $1,600.
With altLINE, The Southern Bank prides itself on clear, transparent pricing. Interested in learning more about our ABL program or simply looking for some guidance? Contact us today – we’re here to help.
Company
Electrical Components Distributer in the Southeast
Background
A regional distributor of electrical components was in the midst of acquiring and rolling up smaller distributors in its current geographic footprint. Up until this point, the business had grown organically with the help of a line of credit provided by their traditional lender. Growth through acquisition had always been part of the plan, but the increased debt and resulting impact on near-term financial performance were causing the distributor to trigger multiple covenants in their current financing.
The bank valued and desired to maintain the real estate and depository relationships with the customer, but the distributor no longer met the criteria required for the existing line of credit. The discussions between bank and borrower became strained. The Relationship Manager realized the bank would either need to take on outsized risk or risk losing the banking relationship entirely. Rather than waiting for the inevitable, the Relationship Manager contacted The Southern Bank’s altLINE team to see how they could assist.
Outcome
With a warm intro and financials readily available, The Southern Bank presented a preliminary proposal for the borrower within the day. The altLINE team analyzed the customer list, the cash conversion cycle, and the typical transaction terms. The resulting proposal offered not only a soft landing for a business that no longer qualified for traditional financing, but the new line also increased the business’s overall borrowing capacity giving it a greater cushion as it pursued its rollup efforts.
The commercial banker and current lender maintain the primary banking relationship with the customer. As such, the bank is well-positioned to refinance the Asset Based Line when the customer’s financials and business goals allow. In the meantime, the current lender is viewed as a problem solver by the customer and can sleep well at night knowing their customer’s needs are being met by a reputable lender.
