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Private Capital Markets: Valuation, Capitalization, and Transfer of Private Business Interests + Website, 2nd Edition by Robert T. Slee

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CHAPTER 20

Asset-Based Lending

The asset-based lending industry makes loans secured by a variety of assets. These loans are used for a number of purposes ranging from growth to turnaround financing. Typically, asset-based lenders (ABLs) lend against the current assets of a business, such as the accounts receivable (A/R) and inventory. Other asset classes, such as property, plant, and equipment, may also serve as collateral. It should be noted that commercial banks make asset-based loans as well. But pure ABLs are much more interested in underlying asset values for securing their loans than a commercial bank would be. Conversely, ABLs are less interested in a company's earnings and financial loan covenants than a bank. Another major difference between asset-based lending and commercial banking is that state and federal governments regulate the latter. Since ABLs are not regulated, they have more autonomy to structure deals. Asset-based lending is sometimes called commercial finance or secured lending.

Owner-managers are motivated to seek asset-based lending for a variety of reasons. They may have no choice because their bank requests the migration. Or asset-based lending may be the least expensive source of funds available to their company. Thousands of companies that otherwise would not qualify for traditional bank lending receive asset-based loans each year. Even if the bank says yes, borrowing capacity is often greater with an asset-based loan than with a bank credit line. Also, ...

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