What is an Asset-Based Loan facility?
Asset-based loans are revolving lines of credit that typically are secured by working-capital assets such as accounts receivable and inventory. Occasionally, even purchase orders, trademarks and intellectual property can be utilized. Asset based lenders rely on the value of the underlying collateral to minimize the loans credit risk. The revolving line amount available is governed by a formula, which is usually the sum of the accounts receivable outstanding plus the inventory and multiplied by a factor (usually around 80-85% for accounts receivable and 50% for inventory). The amount owed by the customers of the borrower (account debtors) and the inventory is monitored by the lending institution, and the submission of monthly accounts receivable aging reports and inventory listings are required. Typically the accounts receivable and inventory assets will be structured as a revolving line of credit, while machinery and equipment can be used to structure a term loan with a fixed repayment
