An asset based business line of credit is usually designed for the same purpose as a normal business line of credit - to allow the company to bridge itself between the timing of cashflows of payments it receives and expenses. The primary timing issue involves what are known as accounts receivables - the delay between selling something to a customer and receiving payment for it. A non asset based line of credit will have a credit limit set on account opening by the accounts receivables size, to ensure that it is used for the correct purpose. An asset based line of credit however, will generally have a revolving credit limit that fluctuates based on the actual accounts receivables balances that the company has on an ongoing basis. This requires the lender to monitor and audit the company to evaluate the accounts receivables size, but also allows for larger limit lines of credits, and can allow companies to borrow that normally would not be able to. Generally, terms stipulating seizure of collateral in the event of default allow the lender to profitably collect the money owed to the company should the company default on its obligations to the lender.
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Leveraged Finance
Leveraged Finance Defined
Healthcare Finance
Asset-Based Lending
Factoring of receivables, is a subset of asset-based lending and is often used in conjunction with a standard ABL facility which uses inventory or other assets as collateral. The lender mitigates its risk by controlling who the company does business with to make sure that the company's customers can actually pay.
Lines of credits to even riskier companies may require that the company deposit all of its funds into a "blocked" account. The lender then approves any withdrawals from that account by the company and controls when the company pays down the line of credit balance.
Still another subset of a collateralized loan is a Pledging of Receivables and an Assignment of Receivables as Collateral for the Debt. In many instances, Receivables are transferred to the lender when they are Pledged as Collateral. When the Receivables are Pledged as Collateral, or Assigned with the condition that the Lender "has Recourse" in the event the Receivables are uncollectible, the Receivables continue to be reported as the borrower's asset on the borrower's Balance Sheet and only a Footnote is required to indicate these Receivables are used as Collateral for debt. The debt is reported as a Liability on the borrower's Balance Sheet and as an Asset (a Receivable) on the Lender’s Balance Sheet. In some situations, the lender can actually Repledge or Sell the Collateral the borrower used to secure the loan from the lender. In this instance, the borrower continues to recognize the Receivables as an asset on the borrower's Balance Sheet, and the lender only records the Liability associated with the obligation to return the asset.
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Source :
http://en.wikipedia.org/wiki/Asset-based_lending
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Leveraged Finance
Leveraged Finance Defined
Healthcare Finance
Asset-Based Lending
- Features of Asset-based loans
- GE Capital Commercial Finance
- Equity Capital Group (ECG)
- European Equipment Finance (EEF)
- GE Capital Real Estate
- Structured Financial Group (SFG)
- Equipment Managemen
- Specialty Insurance
Factoring of receivables, is a subset of asset-based lending and is often used in conjunction with a standard ABL facility which uses inventory or other assets as collateral. The lender mitigates its risk by controlling who the company does business with to make sure that the company's customers can actually pay.
Lines of credits to even riskier companies may require that the company deposit all of its funds into a "blocked" account. The lender then approves any withdrawals from that account by the company and controls when the company pays down the line of credit balance.
Still another subset of a collateralized loan is a Pledging of Receivables and an Assignment of Receivables as Collateral for the Debt. In many instances, Receivables are transferred to the lender when they are Pledged as Collateral. When the Receivables are Pledged as Collateral, or Assigned with the condition that the Lender "has Recourse" in the event the Receivables are uncollectible, the Receivables continue to be reported as the borrower's asset on the borrower's Balance Sheet and only a Footnote is required to indicate these Receivables are used as Collateral for debt. The debt is reported as a Liability on the borrower's Balance Sheet and as an Asset (a Receivable) on the Lender’s Balance Sheet. In some situations, the lender can actually Repledge or Sell the Collateral the borrower used to secure the loan from the lender. In this instance, the borrower continues to recognize the Receivables as an asset on the borrower's Balance Sheet, and the lender only records the Liability associated with the obligation to return the asset.
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Source :
http://en.wikipedia.org/wiki/Asset-based_lending
