Bank-Based Asset Based Lenders:
Revolving Lines of Credit (RLOC):
- Accounts Receivable - Generally up to 85% of eligible receivables aged less than 90 days from date of invoice. Progress payments or receivables that are not fully earned until some future date are problematic.
- Inventory – Generally up to 60% of eligible inventory (usually raw & finished goods) or up to 85% of the net orderly liquidation value of appraised inventory if lender is unfamiliar with the inventory.
Machinery & Equipment (M&E) Term Loans:
- Advance rates based upon performance of company and can range from 80% of net forced sale value to 100% of net orderly liquidation value of machinery and equipment.
Real Estate (R/E) Term Loans:
- Historically rates ranged from 50% - 80% of fair market value; asset based lenders are not too excited about real estate these days.
Basic Considerations:
- Generally looking for RLOC to be 50%+ of the total loan, 75%+ in turnaround situations.
- Turnarounds must generally be proven with at least a couple months of positive results.
- Balance sheet equity is not an issue.
- Match loan size to bank size – Mega banks generally won’t provide the best match for smaller deals. Smaller banks generally won’t provide the best match for larger deals. Example – Chase can underwrite deals over $100 million; Citizens really tops-out around $15 - $20 million.
- Pay attention to specialization of lender; lending to manufacturers is very different than lending to distributors or retailers.
- Risk profile of lender is important. Being at the lowest end of a middle market lender's risk profile may be less expensive at the risk of flexibility and risk of movement into a workout mode.
- Interest rates can range from LIBOR + 150 – Prime + 4 based upon deal size and risk.
- Generally requires dominion of funds, lockbox collection, at least weekly borrowing base submission, quarterly field examinations.
- Frequently very few financial covenants.
