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Non-Bankable Structured Finance
Asset Based Finance
One component of senior debt is a term loan. This is typically a business loan that is based on a certain percentage of the orderly liquidation value of the machinery and equipment and the appraised fair market value of the land and buildings.
Business loans against equipment and real estate are often made in the form of term loans that include regular periodic payments of both principal and interest in order to retire the debt at a fixed maturity date. Asset-based loans using real estate as collateral have longer maturities than equipment loans because of the generally shorter economic life expectancy of equipment.
Business loans are secured by a wide variety of assets. Businesses can borrow money, using collateral such as accounts receivables and inventory or fixed assets such as plant, property and equipment. Asset-based loans also can include equipment loans and real estate mortgages.
Companies in an array of industries and at varying stages of their lifecycles use asset-based loans for a multitude of reasons including mergers and acquisitions, debt refinancing, capital expenditures, working capital, leverage buyouts and even employee stock ownership programs. Assets in business offer flexible financing solutions for the following uses:
Working Capital: The assets available to apply to a business' operations are considered working capital assets. At times, working capital loans are needed to bridge financial gaps during the lifecycle of a business. Working capital loans can be secured by a variety of asset types, including accounts receivable, inventory, equipment, and/or real estate.
Acquisition: To grow a business, a company may look to acquire a strategic partner or even a competitor. Asset-based financing is often an efficient means to obtain funding for business acquisitions.
Turnaround Financing: Turnaround financing is often used by under-performing businesses that are not achieving their full potential. In some cases, it is used for businesses that are either insolvent or on their way to becoming insolvent. Asset-based lenders are accustomed to the bankruptcy process and asset-based financing is ideal for turnarounds because of its flexibility.
Capital Expenditures: Capital expenditure is the money spent to acquire and/or upgrade physical assets such as buildings and machinery. Capital expenditure is also commonly referred to as capital spending or capital expense.
Debtor-in-Possession (DIP) Financing: Debtor-in-possession (DIP) refers to a company that has filed for protection under Chapter XI of the Federal Bankruptcy Code and has been permitted by the bankruptcy court to continue its operations to implement a formal reorganization. A DIP company can still obtain loans, but only with bankruptcy court approval. Asset-based lenders also provide exit financing or confirmation financing to companies coming out of bankruptcy.
Growth: Typically, as a company grows so does its need for financing. Also, as a company's collateral grows, its assets can strengthen its ability to borrow. An experienced and creative asset-based lender can assemble a credit facility that can scale to grow with a company.
Recapitalization: Recapitalization is the process of fundamentally revising a company's capital structure. A company typically might recapitalize due to bankruptcy or replacing debt securities with equity in order to reduce the company's ongoing interest obligation. A leveraged recapitalization typically achieves just the opposite—by taking on a material amount of debt, the company increases its ongoing interest obligation but is able to pay its shareholders a special dividend. Our elnding partners have extensive experience guiding businesses through the stages of recapitalization.
Refinancing/Restructuring: When a company enters or exits a growth stage, refinancing or restructured financing may be key to creating a capital structure that better meets the needs of the company. This type of financing is often used for market expansion, completing an acquisition, restructuring operations, or following a successful corporate turnaround.
Buyout: A buyout is the purchase of a controlling percentage of a company's stock. In a leveraged buyout (LBO), the acquiring company uses the minimum amount of equity to purchase the target company. The target company's assets are used as collateral for debt, and its cash flow is used to retire debt accrued by the buyer to acquire the company. A management buyout (MBO) is an LBO led by the existing management of a company. Most LBOs are also MBOs.
There are a number of advantages to using asset-based financing:
Generates more liquidity — for a company within a cyclical industry, borrowing money against its assets may result in a more predictable borrowing availability. On the other hand, if a company borrows against a multiple of earnings (EBITDA) and the earnings decline, the borrower will find itself being able to borrow less.
Has built-in disciplines — because the borrowing availability is based on advance rates against current accounts receivable, an ABL structure motivates borrowers to collect their receivables more promptly. Similarly, because work-in-process generally is ineligible collateral, borrowers are motivated to increase the efficiency of their production process to increase liquidity.
Fewer financial covenants, including higher balance sheet leverage — typically, an asset-based loan requires fewer financial covenants because of its collateral orientation. The most common covenants are debt service coverage and net worth.
Lender patience — because a lender has collateral to protect its loan, the lender may be willing to give the borrower more time to turn around a company that may be having financial difficulties.
Lendmark has partnered with funders who can provide loans for any businesses with a revenue of at least $2M-$500M+. We can arrange business loans of $500K to $500M throughout Canada and United States. We can also arrange non-bankable financing with a revenue of $3M-$500M
Planning an acquisition?
In a turnaround situation?
In need of increased working capital?
Outgrown your current lender?
Need the ultimate in flexible financing solutions?
If any of the above applies to your organization, we have a solution for you.
Lendmark has access to lenders who provide secured asset-based loans to the middle market across a variety of industries with additional complimentary financing throughout the capital structure. Being a direct originator of senior secured Asset Based Loans across North America and abroad, our lenders target transaction size ranges from $3M to $500M transactions.
Lendmark's partners often support borrowers that may not qualify for traditional bank financing because of their size, historical performance, geography or complexity of their situation.
Industries of interest include (but are not limited to):
Select service industries
Wholesale apparel and garment
Commercial supply chain
Direct marketing & catalogue
Food & beverage
Health & wellness
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