Asset-Based Financing

Provided by Bank of America Business Capital

Products and Services

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Awards & Recognition

  • #1 U.S. bookrunner of asset-based loans in volume, number of deals and market share
    Thomson Reuters, 2011
  • #1 U.S. lead arranger of asset-based loans for the year 2010
    Thompson Reuters League Tables, December, 2010
  • #1 Left Lead Bookrunner for Asset-Based Loans
    Dealogic, 2010

Overview

Bank of America Business Capital provides asset-based credit facilities of $10 million or more throughout the United States, Canada and Europe for manufacturers, wholesalers, distributors and service businesses.

  • Planning an acquisition?

  • In a turnaround situation?

  • In need of increased working capital?

  • Outgrown your current lender?

  • Need the ultimate in flexible financing solutions?

If any of the above applies to your organization, then Bank of America Business Capital has a solution for you.

As one of the leading senior secured lending organizations in the world, with one of the largest asset-based portfolios, Bank of America Business Capital is positioned to finance companies in a broad array of industries.

Structure

An asset-based loan is typically structured as a revolving line of credit without a scheduled repayment and on an interest-only basis. The lender advances funds based on a percentage of the accounts receivable (normally 70-85 percent) and inventory (0-60 percent) and, when such assets convert to cash, the advances are repaid accordingly. Ineligible collateral is not included in the borrowing base. Ineligible accounts receivables include past due receivables, inter‑company receivables, and other lower quality receivables. Ineligible inventory includes work‑in‑process, packaging materials, or inventory at a sub-contractor.

Revolver

A revolver allows a borrower to borrow, repay and reborrow as needed over the life of the loan facility. Bank of America Business Capital provides revolvers of $10 million or more.

Term Loan

One component of senior debt is a term loan. This is typically an asset-based loan that is based on a certain percentage of the orderly liquidation value of the machinery and equipment and the appraised fair market value of the land and buildings.

Asset-based loans against equipment and real estate are often made in the form of term loans that include regular periodic payments of both principal and interest in order to retire the debt at a fixed maturity date. Asset-based loans using real estate as collateral have longer maturities than equipment loans because of the generally shorter economic life expectancy of equipment.

Typical Uses

Asset-based loans are secured by a wide variety of assets. Businesses can borrow money, using collateral such as accounts receivables and inventory or fixed assets such as plant, property and equipment. Asset-based loans also can include equipment loans and real estate mortgages.

Companies in an array of industries and at varying stages of their lifecycles use asset-based loans for a multitude of reasons including mergers and acquisitions, debt refinancing, capital expenditures, working capital, leverage buyouts and even employee stock ownership programs. Asset-based loans offer flexible financing solutions for the following uses:

  • 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.

  • 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.

  • Turnaround Financing: Turnaround financing is often used by under-performing businesses that are not achieving their full potential. In some cases, it is used for businesses that are either insolvent or on their way to becoming insolvent. Asset-based lenders are accustomed to the bankruptcy process and asset-based financing is ideal for turnarounds because of its flexibility.

  • 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.

  • Debtor-in-Possession (DIP) 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.

  • 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.

  • Recapitalization: Recapitalization is the process of fundamentally revising a company's capital structure. A company typically might recapitalize due to bankruptcy or replacing debt securities with equity in order to reduce the company's ongoing interest obligation. A leveraged recapitalization typically achieves just the opposite—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. Bank of America Business Capital has extensive experience guiding businesses through the stages of recapitalization.

  • Refinancing/Restructuring: 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.

  • Buyout: 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 is one of many corporate finance alternatives that provide significant tax incentives to both business owners (potential deferral of capital gains) and ESOP Companies (potential exemption from federal income taxes). ESOPs can be used not only to finance stock purchases from existing shareholders, but also to facilitate corporate transactions such as management buyouts, acquisitions and divestitures.

Benefits

There are a number of advantages to using asset-based financing:

  • Generates more liquidity — for a company within a cyclical industry, borrowing money against its assets may result in a more predictable borrowing availability. On the other hand, if a company borrows against a multiple of earnings (EBITDA) and the earnings decline, the borrower will find itself being able to borrow less. 

  • Has built-in disciplines — because the borrowing availability is based on advance rates against current accounts receivable, an ABL structure motivates borrowers to collect their receivables more promptly. Similarly, because work-in-process generally is ineligible collateral, borrowers are motivated to increase the efficiency of their production process to increase liquidity. 

  • Fewer financial covenants, including higher balance sheet leverage — typically, an asset-based loan requires fewer financial covenants because of its collateral orientation. The most common covenants are debt service coverage and net worth. 

  • Lender patience — because a lender has collateral to protect its loan, the lender may be willing to give the borrower more time to turn around a company that may be having financial difficulties.

Client Web Site

abl.bankofamerica.com allows Bank of America Business Capital clients to access and monitor their account information quickly and easily over the Internet. With my.bofabusinesscapital.com, clients can log on for account information anytime, in a secure, private environment. Now clients can view online:

  • Loan status/availability — Check your availability on a daily basis

  • Loan ledgers — View loan transactions like wire transfers and deposits or look up transaction history

  • Month-end interest statements — Download statements right into your own spreadsheet software

  • Prime and LIBOR interest rates — Check rates easily

In addition, clients have the ability to submit online:

  • Borrowing certificates/borrowing base — Report collateral changes and borrowing base

  • Advance requests — Expedite your requests online

  • LIBOR requests — View your current rate's maturity date and amount or request LIBOR online

Clients can still rely on the expertise and personal attention of Bank of America Business Capital's Loan Servicing Administrators. abl.bankofamerica.com simply expands the service options to better meet client needs.

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  I am seeking an asset-based loan of $10 million or more.
For smaller loan requests please use the following online forms:

  My company is headquartered in the United States, Canada or continental Europe.
Bank of America Merrill Lynch does not have asset-based lending capabilities outside of the United States, Canada and continental Europe.

 

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