The ABCs of ABLs

"Asset-based lenders encompass a broad category of firms that provide debt financing by lending against the assets of a company... Typically, ABLs are unregulated nonbank lenders (though they may be owned by a bank) that have the flexibility to make more highly leveraged loans based on the situation and collateral specific to their client's business. A true asset-based loan will be repaid from the liquidation of the collateral regardless of the state of the business. It is more important for the collateral to perform than for the company to perform. An ABL's key concerns are the liquidation value of its loan's underlying assets and potential management fraud. These concerns lead to control and close monitoring of their collateral...four benefits of asset-based financing:

1. The entire cost of an asset-based loan is paid with pretax dollars, unlike most equity costs.
2. ABLs do not seek a seat on the board or any control of the company, just a risk-adjusted and fair return on their money.
3. ABL relationships can usually be terminated by paying off the balance of outstanding debt to the ABL and any accrued interest and fees. Equity and other sources can be much more difficult to exit.
4. Asset-based loans are evergreen in nature, with no set amortization or payment schedule. They can grow as the business grows, unlike many other forms of financing. "

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