Why Asset-Based Financing?
Over the years, asset-based financing has evolved into a widely-accepted form of financing. Asset-based financing has become the financing vehicle of choice for a broad array of businesses for several reasons:
Borrowing Capacity – In many cases companies can borrow more against the value of their assets than would otherwise be permitted by “traditional” lending parameters such as debt/EBITDA or debt/net worth ratios.
Flexibility – Asset-based loans often have more flexible covenant packages. In many cases, there are no formal covenants tested until certain liquidity thresholds are reached. Many borrowers enjoy relief from restrictive financial covenants.
Cost Effectiveness – Asset-based loans are usually the most cost effective debt in a company’s capital structure. Asset-based lenders take comfort from the assets securing the loan, which allows them to often charge less than “traditional” lenders.