Tried, True and Trusted—A Primer on Asset-Based Loans

Overview: Balance sheet management has become increasingly more complex with the litany of financial tools available today. Under increased scrutiny, many financial executives are getting "back to basics.” Companies seeking both liquidity and transparency are turning to asset-based loans. An Asset-based loans is defined as a secured business loan in which the borrower pledges as collateral any assets used in the conduct of his/her business. Although asset-based lending is typically up when the economy is down, the industry's growth started long before this economic downturn. This is particularly important because asset-based loans require ongoing reporting of accounts receivable, inventories and fixed assets to help lenders assess the borrower's ability to repay the loan. An asset-based loan is typically structured as a revolving line of credit without a scheduled repayment and on an interest-only basis. Some of the advantages of this are generates more liquidity, has built-in disciplines, lender patience. Thus, increased competition and advances in reporting technology have lowered asset-based loan pricing significantly.

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Format: HTML | Date: Jul 2002 | Pages: 1