It’s time to take a fresh look at asset-based lending
Mercado turned to an asset-based lender that provided the company with a revolving credit line based on accounts receivable that allowed them to not only keep operations going, but to implement a growth plan that has resulted in 300 percent annual growth. “Without an asset-based loan, we could not have grown from where we started to where we are now,” says Mercado.
In addition to helping new start-ups like DataLogix Texas get off the ground, ABL is often the right financing solution for companies experiencing growth spurts that banks are uncomfortable lending to. This is because the asset-based loan amount can increase along with the company’s inventory and receivables — or in other words, it can track the growth of the business.
Chattanooga, Tenn.-based Southeast Rubber and Safety experienced very rapid growth — between 30-50 percent a year — soon after launching, which presented the company with some significant cash flow challenges, says founder and President Wayne Guffey.
“We borrowed from everyone to start the business, invested our own money, and tapped our home equity lines of credit,” Guffey explains. Then the company was able to secure a $100,000 line of credit from its bank, which increased the credit line several times, eventually to more than a half-million dollars. But this still wasn’t enough to fund the company’s explosive growth.
Fortunately, his banker referred Guffey to an asset-based lender that set the company up on an A/R financing program that has allowed the business to continue growing at a rapid rate. “The bank wanted us to slow our rate of growth, but it’s hard for me to say ‘no’ to new business,” says Guffey. “The timing was perfect, because the A/R financing enabled us to take advantage of some opportunities we wouldn’t have been able to without it.” This included moving into a new 58,000 square-foot, state-of-the-art facility.
Stuck in the Crunch?
While ABL isn’t the right financing solution for every business credit need, it’s not a financing option of last resort, either. In the right circumstances, an asset-based loan can provide much-needed capital to help companies weather temporary cash flow shortfalls or take advantage of growth opportunities.
If your company is still stuck in the middle of the cash flow crunch, it might be worthwhile to give asset-based lending a fresh look.
Tracy Eden is the national marketing director for Commercial Finance Group (CFG), which has offices throughout the U.S. and Canada. CFG provides creative financing solutions to businesses that may not qualify for traditional financing. Visit www.cfgroup.net or contact Tracy at firstname.lastname@example.org.