How Asset Based Lines of Credit Work
We’ve got several different products here at Breakout and sometimes it isn’t so clear exactly what they are or more importantly, how they help our clients make progress. Today, to offer some clarity on asset based lines of credit, is our ABL Lead, Sarah Cali.
What are the Most Important Things to Know?
ABL is a financing product based on a line of credit. It offers capital to your business that can be used to pay suppliers, meet payroll or fund other day to day expenses of running the business. It is secured with assets such as accounts receivable, inventory, and equipment. These assets generally must be debt free.
At Breakout, our ABL lending works as a line of credit based on a specified advance rate for each category of assets as mentioned above.
For example, you may get 85% of your accounts receivable up front, or 50% of your total inventory value.
Each asset category can have a different advance rate
When a client would like to advance on their line of credit they must submit a Borrowing Base Certificate (aka BBC) along with supporting reports.
Availability is increased or decreased based on new sales reporting and AR reports
Inventory reporting also allows for the correct availability against current inventory
When a customer pays an invoice the payment is received by Breakout and it pays down the loan balance. Any remaining amounts that were not initially advanced go to increase availability. This cycle of new sales and new customer payments repeats each week and availability fluctuates accordingly.
Unlike factoring, each invoice is not individually verified and advanced against. Instead, a summary of all activity is compiled and advanced against in the BBC. Additional monitoring is typically required for having a more flexible system. This monitoring includes monthly financial reporting submissions, AR verifications, and field exams.
Working off of a borrowing base and getting used to the flow of a revolving line of credit is a great mid-step for clients that are almost ready for bank financing. Our systems allow for a lot of growth and flexibility and can be the perfect fit for a company experiencing growth, seasonality, change or any other number of situations.
Check out the rest of our website to learn more about this and our other products.
