Factoring Lines
of Lines of Credit
Lines of Credit Need financing flexibility? A business Revolving Line of Credit may be the answer. A line of credit can ease temporary cash shortfalls. It can help make sure you're ready to finance needs like rapid growth, restocking inventory, seasonal or volume purchases, and taking advantage of trade discounts. Loan types: Fully-secured Loan amounts: $500,000 to $30 million. Collateral: Accounts receivables, inventory, machinery & equipment, real estate Terms: 1 – 3 years Interest rates: Floating rate of Prime + Industries: Manufacturing, wholesale, distribution and service companies Sales Volume: Companies with annual sales of $5 million to $100 million Geography: United States Revolving lines of credit are structured as either asset-based or cash-flow. Both cash-flow and asset-based structures offer their own unique advantages for those seeking corporate financing. Cash Flow vs. Asset-based considerations Cash Flow revolving loans are better suited for companies with stable cash flow trends and generally require more consistent operating history. While a cash-flow loan requires less reporting than an asset-based loan, the credit available is capped by a leverage multiple, and it typically carries a higher interest rate margin. Cash-flow based revolvers have less reporting, but they also have more covenants, the violation of which can result in additional fees or termination of the loan. The size of such a loan will generally be limited to a multiple of the company's EBITDA (earnings before interest, taxes, depreciation and amortization). In the current environment, that senior debt multiple will cap out at about two to three times EBITDA. Asset-based revolving loans may be better suited for companies with cyclical cash flow, or negative cash flow trends - though many profitable companies utilize an ABL structure because of the reduced covenants package. An asset-based revolver is designed for higher-leveraged borrowers that experience considerable variation in their cash-flow performance and need to maximize their working capital. Borrowers are allowed to draw and repay as their cash cycle dictates, up to the approved amount of the account, throughout the term of the loan. An asset-based loan may also offer greater borrowing leverage than a cash-flow structure because it is based on the value of receivables, inventory, equipment and other assets, which means that a company's borrowing ability will no longer be tied to just its cash flow. In an ABL transaction, borrowing capacity is tied to the underlying value of the firm's assets&ldots; value that might otherwise never be tapped. |
ACCOUNTS RECEIVABLE PURCHASING FACTORING QUESTIONS AND ANSWERS DEBITOR-IN-POSESSION FINANCING
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