Asset-Based Lenders – Providing Scalable Partnership for Hard-to-Find Capital and Extra Liquidity
For many lower-and/or middle-market companies with at least $10 million in revenue, asset-based lenders have become the bedrock debt capital partner in their rise to bankability. ABLs provide a source of financial solutions to businesses going through transformational periods by creating a structure to leverage assets. They are situated in the middle of the credit spectrum with a higher credit quality grade than factors, but lower than a bank.
Factors middle-market companies experience, such as consolidation, macroeconomic changes, supplier issues and industry change may warrant the need for capital sources afforded by an ABL provider. Seeking financing from banks, where interest rates and regulations have to be met, may not be a viable option.
Many factors drive the motivation behind using an ABL
While there are many factors affecting why a business might use an ABL provider, the most common reason is to provide capital through a business cycle or transition period.
Currently, competition from traditional and alternative lending sources is at an all-time high. The ABL can play a pivotal role as the company moves to-and-from banks and other commercial lenders. While there may be a constant need for capital, underwriting standards and regulatory hurdles remain challenging and require ongoing monitoring for risk. ABLs seek to mitigate these risks by focusing on firms that seek to provide incremental subordinated financing to facilitate a transaction to an ABL structure. As a result, subordinated debt products are coming into the forefront as ways to generate new ABL clients.
Banks and other non-bank lenders are moving into the ABL business also
Seeing the need to service these middle-market companies through non-traditional ways, most major national and regional banks have acquired ABLs or started their own groups. They have acquired ABLs like Marquette, First Capital and Presidential in order to serve this current and future financing need. Likewise, there are non-bank lenders like BDCs and private debt funds getting into this field to service clients who might be turned away from bank-owned ABLs.
In summary, ABLs serve a market need by partnering with middle level companies to provide hard-to-find capital, transitioning these companies to a borrowing base that will ultimately provide for extra liquidity or a large opening reserve.
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