Accounts Receivable Lending
Accounts receivable lending is a structured methodology that provides working capital to under-capitalized companies that would not qualify for traditional bank loans because of lack of profitability, high leverage, short time in business etc. Accounts receivable lending is available from $50,000 to $100M and higher. To qualify a company
must have collateral whose liquidation value can be determined before the financing is provided.
The major collateral is usually the company’s accounts receivable, which should be due from debtors of the company without any contingencies or potential offsets like consignment sales, guaranteed sales or other types of dilution. Typically a company that has $1M in A/R can borrow $800,000 on a revolving basis, with collections paying down the loan and sales allowing the borrowing of additional funds. Depending on the strength of the company collections may continue to go directly to the company or may go to a lock-box controlled by the lender. Company owned inventory, equipment and real estate can also be used as collateral on a case by case basis. There may be appraisal requirements for inventory, equipment and real estate collateral.
There is almost always an audit of the books and records of the company prior to
financing approval by the lender. Thus, one risk a company faces is to incur these out-of-pocket costs and still not get an approval for financing. It is very important due to this and future working relationship to obtain a very high quality and ethical lender to work with. Storyloan.com puts its 38 years of professional experience in Accounts receivable financing to work for companies seeking this type of lending relationship.
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