- Working Capital - The assets available to apply to a business' operations are considered working capital assets. At times, working capital loans are needed to bridge financial gaps during the lifecycle of a business. Working capital loans can be secured by a variety of asset types, including accounts receivable, inventory, equipment, and/or real estate.
- Merger & Acquisition - To grow a business; a company may look to acquire a strategic partner or even a competitor. Asset-based financing is often an efficient means to obtain funding for business acquisitions.
- Capital Expenditures - Capital expenditure is the money spent to acquire and/or upgrade physical assets such as buildings and machinery. Capital expenditure is also commonly referred to as capital spending or capital expense.
- Growth - Typically, as a company grows so does its need for financing. Also, as a company's collateral grows, its assets can strengthen its ability to borrow. An experienced and creative asset-based lender can assemble a credit facility that can scale to grow with a company.
- Refinancing/Restructuring/Debt Consolidation - When a company enters or exits a growth stage; refinancing or restructured financing may be key to creating a capital structure that better meets the needs of the company. This type of financing is often used for market expansion, completing an acquisition, restructuring operations, or following a successful corporate turnaround.
- Dividend Recapitalizations - Recapitalization is the process of fundamentally revising a company's capital structure. A leveraged recapitalization typically is achieved by taking on a material amount of debt, the company increases its ongoing interest obligation but is able to pay its shareholders a special dividend. MB Business Capital has extensive experience guiding businesses through the stages of recapitalization.
- Turnarounds - Turnaround financing is often used by under-performing businesses that are not achieving their full potential. Asset-based lenders are accustomed to this scenario and asset-based financing is ideal for turnarounds because of its flexibility.
- Buyouts - A buyout is the purchase of a controlling percentage of a company's stock. In a leveraged buyout (LBO), the acquiring company uses the minimum amount of equity to purchase the target company. The target company's assets are used as collateral for debt, and its cash flow is used to retire debt accrued by the buyer to acquire the company. A management buyout (MBO) is an LBO led by the existing management of a company. Most LBOs are also MBOs.
- Leveraged ESOP (Employee Stock Ownership Plan) - A leveraged ESOP allows a company to raise its capital-to-asset ratio by issuing new shares of stock to an employee trust, which finances the transaction with an asset-based loan. The ESOP loan is repaid in pre-tax corporate dollars, and dividend payments to employees as well as the dividends reducing the bank loan are tax-deductible expenses. ESOPs may provide new capital for expansion or capital improvements, to buy out the stock of a retiring owner, divest a division, make acquisitions, and buy back publicly traded stock.
- Debtor-in-Possession Financing - Debtor-in-possession (DIP) refers to a company that has filed for protection under Chapter XI of the Federal Bankruptcy Code and has been permitted by the bankruptcy court to continue its operations to implement a formal reorganization. A DIP company can still obtain loans, but only with bankruptcy court approval. Asset-based lenders also provide exit financing or confirmation financing to companies coming out of bankruptcy.
- Cyclical Companies
- Selected Service Companies
- Retail- Regional and national store-based retail chains and some internet-based retailers
- Working-capital-intensive companies
- High quality asset-rich companies
- Seasonal or cyclical companies
- Companies undergoing turnarounds
- Retail-based companies
- Financial sponsors looking for acquisitions
- Private equity funds looking to assist their portfolio companies
- Companies that have out-grown their current lender
- Companies that have moderate to high financial leverage
- Companies that have inconsistent profitability
- Companies seeking to expand their business into new markets
- Companies looking to grow their business but may not have the adequate sales or assets
- Companies with an actively involved management team and or board that want to increase their equity
- Versatile - Asset based lending provides immediate and on-going cash flow that can be used to buy materials and supplies, meet seasonal demands, meet payroll and operating expenses, and keep payables current, just to name a few.
- No Excessive Reporting - Typically ABL lenders require a very minimal amount of reports such as a monthly aging of AR & INV. Of course each loan is unique so reporting is tailored to each individual loan.
- Liquidity - Asset-rich borrowers can leverage more liquidity than typical lending allows.
- Limit Interest Expense - Efficient borrowing mechanics, which allow for pay down and re-borrowing of funds when needed, you only pay interest on your outstanding loan balance.
- Fewer Covenants - Less reliant on borrowers operating performance, therefore requires fewer financial covenants.
- Higher Lender Tolerance - Asset based lenders have collateral to secure its loans and may be more willing to work with borrowers during times of financial difficulty.
- Motivation to collect AR quicker - ABL advance rates are based on current eligible AR thus motivating borrowers to collect AR quicker. There is also a motivation to increase efficiency of production processes, which reduces WIP, and reduce ineligible collateral, thus increasing liquidity.
- Experience - MB Business Capital has one of the most seasoned and knowledgeable ABL teams covering the US from coast to coast.
- Industry knowledge - MB Business Capital lenders have a deep understanding of how to turn assets into captial - in your industry.
- Learn more about recently funded deals
- Read what our customers say about us
An asset-based loan is secured/collateralized by a company's accounts receivable, inventory, equipment, and/or real estate. The lender takes a first priority security interest (Senior Position aka Senior Debt Financing) in the assets being financed. A specialized method of providing structured working capital and term loans that are secured by accounts receivable, inventory, machinery, equipment and/or real estate. Advance of funds are based on a percentage of the eligible accounts receivable. When AR & INV convert to cash the advances are re-paid accordingly.
An ABL is typically comprised of a revolving line of credit that does not have a typical structured repayment plan and is on an interest-only basis. MB Business Capital will advance funds on eligible accounts receivable-up to 85% and eligible inventory-up to 60%. Higher advance rates are available based upon appraisal and to meet seasonal needs.
Senior Debt may also include an asset-based term loan secured with machinery and equipment. MB Business Capital term loans are based on appraised value of M&E, and appraised fair market value of real estate and capital expenditure facilities to finance new equipment. MB Business Capital’s term loans include regular periodic payments of both principal and interest in order to repay the debt at a set maturity date. ABL loans using real estate as collateral usually have longer maturities than M&E loans because M&E typically have a shorter economic life expectancy compared to RE. MB Business Capital’s M&E loans can be amortized up to 7 years and RE up to 15 years.
MB Business Capital also offers senior stretch facilities that will include cash flow loans up to 25% of the total facility. The cash flow loan is supported by sufficient cash flow to repay principal, generally within 24 months.
Loan Commitments=$5MM-$50MM (Syndication up to $100MM)
Interest Rates-Based on Prime and LIBOR.
Click here to see our lending parameters.
An asset-based loan is secured/collateralized by a company's accounts receivable, inventory, equipment, and/or real estate. The lender takes a first priority security interest (Senior Position aka Senior Debt Financing) in the assets being financed. A specialized method of providing structured working capital and term loans that are secured by accounts receivable, inventory, machinery, equipment and/or real estate. This type of funding is great for start-up companies, refinancing existing loans, financing growth, mergers and acquisitions, and management buy-outs (MBOs) and leveraged buy-out (LBOs).
Asset based lending is ideal for "asset rich" companies, an asset-based loan may make more funds available because it is not based strictly on the anticipated levels of cash flow. Additionally, the structure often requires fewer covenants, providing more flexibility for many borrowers.
A RLOC allows a borrower to borrow, repay and re-borrow as needed over the life of the loan facility.
The term "EBITDA" stands for Earnings Before Interest, Taxes, Depreciation and Amortization. It is a financial tool often used to measure a company's cash flow and ability to service its debt. For any period, the sum of Borrower’s and its Subsidiaries’: (a) net income after taxes for such period (excluding extraordinary gains or losses); plus (b) Interest Expense for such period; plus (c) income tax expense for such period; plus (d) depreciation and amortization for such period; plus or minus (e) any other non-cash charges or gains which have been subtracted or added in calculating net income after taxes for such period, all on a consolidated basis.
Earnings Before Interest and Taxes. EBIT represents cash available to pay off creditors in the event of a liquidation. It can also be called operating profit. EBIT = (recurring revenue-recurring expenses) (such as overhead) but not subtracting its tax liability or interest paid on debt.
The term "LIBOR" is an acronym for London Interbank Offered Rate, which is the market interest rate charged by lenders and paid by borrowers for U.S. dollars outside U.S. borders (commonly called Eurodollars).
LIBOR is quoted on a daily basis representing fixed time periods ranging from 30 days to 360 days. The rate is set not by banks but by market forces in the supply and demand of Eurodollars. Interest rates on senior acquisition financing are normally based on a floating rate related to either the prime rate or LIBOR.
For any period, without duplication, the sum of:
(a) scheduled payments of principal during the applicable period with respect to all Indebtedness of Borrower; plus
(b) paid or scheduled payments of principal during the applicable period with respect to all capitalized lease obligations of Borrower; plus
(c) Interest Expense; plus
(d) any pre-payments of Indebtedness.
The measure of a company’s ability to satisfy fixed expenses ex., interest on debt (without incurring additional debt to pay that interest), principal rent, leases, and mortgages. A ratio of 1 indicates ability to pay fixed charges and a ratio below 1 indicates the opposite. Fixed-charge coverage ratio is calculated as follows: Fixed-charge coverage ratio = (EBITDA –Unfinanced Capex) / (Principal + interest + capital leases)
The level of controls and monitoring by the asset-based lender is directly related to the credit-worthiness of the borrower. Typical controls include:
- Borrowing Base Formula - A borrowing base formula that monitors the relationship between the value of the collateral available to secure the outstanding loan and the actual balance of the loan on a regular basis.
- Collateral Reporting - Funding controls, or collateral reporting, may be required daily, weekly, or monthly and range from submission of sales invoices/shipping documents to accounts receivable aging and listings/inventory listings.
- Collection Controls - The asset-based lender requires dominion, or control, over cash by establishing a collateral account into which accounts receivable collections are deposited. Access to this account is restricted to the asset-based lender.
- Ongoing Audits - Ongoing audits are also used to monitor the account. The asset-based lender will audit the borrower's books and records periodically to verify the accuracy and validity and to substantiate collateral values as represented by the borrower.
- Communication - The Asset based Loan Officer or Relationship Manager should maintain an ongoing open communication with his borrower.
We work with a host of Key Partners that can fund 2nd Lien Financing.
All business carried on in Canada is carried on by MB Business Capital Canada Inc. which is a subsidiary of MB Financial Bank and is licensed to use the trademark “MB Financial” and “MB Business Capital”.