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. Learn more about revolvers >
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. Learn more about term loans >
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