Asset Based Lending: Policy and Underwriting Guidance for Borrowing Base Lending on Receivables and Inventory

On Demand Course

Instructor: Dev Strischek

Duration: 1 HR

What You'll Learn

Asset-based lending (often referred to as “ABL”) is a form of commercial lending designed to finance safely the working capital needs of a borrower whose cash flow currently may not support debt repayment. Like other commercial loans, cash flow is the primary repayment source for an asset-based loan but with stronger reliance on the company's assets as collateral and firmer control over the receipts of the collateral’s liquidation.

Collateral typically available to secure the asset-based loan includes accounts receivable, inventory, machinery and equipment, general and specific intangibles, real estate, and other assets. Because working capital support is the primary objective of most asset-based loan facilities, accounts receivable and inventory generally are the bank's core collateral. Personal guaranties, often secured, can be taken.

Monitoring and controlling collateral is critical to the asset-based lender to mitigate repayment risk. Collateral evaluation begins with a comprehensive field examination to determine value, followed by a continuing program of periodic examinations. The collateral and loan values are monitored continuously (daily/weekly/monthly) to ensure that the realizable value of the collateral is always sufficient to repay outstandings.

Topics covered in this session

· Characteristics of ABL borrowers

Rapid sales growth
Negative operating cash flow
"Evergreen” lending

Customers’ advantages for an ABL facility vs factoring

Collateral considerations

Receivables eligibility
Inventory eligibility

Credit risk mitigation

Lock boxes
Audits
Borrowing base certificate

Types of facilities

Lines of credit
Longer-term revolving facilities

How advance rates are determined

Frequency of funding
Financial condition and operating performance
Cost of funds

Who Should Attend:

Credit Analysts
Credit Managers
Loan review officers
Work-out officers
Commercial lenders
ABL officers and managers
Credit Risk Managers
Chief Credit Officers
Senior Lenders
Senior Lending Officer
Bank Director
Chief Executive Officer
President

About the Author:

Dev Strischek

A frequent speaker, instructor, advisor and writer on credit risk and commercial banking topics and issues, Martin J. "Dev" Strischek is principal of Devon Risk Advisory Group based near Atlanta, Georgia. Dev advises, trains, and develops for financial organizations risk management solutions and recommendations on a range of issues and topics, e.g., credit risk management, credit culture, credit policy, credit and lending training, etc. Dev is the former SVP and senior credit policy officer at SunTrust Bank, Atlanta. He was responsible for developing, implementing, and administering credit policies for SunTrust’s wholesale lines of business--commercial, commercial real estate, corporate investment banking, capital markets, business banking and private wealth management. Prior to SunTrust, Mr. Strischek was chief credit officer for Barnett Bank’s Palm Beach market. Dev is also a member of the Financial Accounting Standards Board’s (FASB’s) Private Company Council (PCC).

On-Demand Course