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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. Learn more in the CapitalEyes article: "The Fundamental Benefits of Today's Asset-Based Finance" (PDF).
Asset-based loans offer flexible financing solutions for the following uses:
Working Capital
Acquisition
Turnaround Financing
Capital Expenditures
Debtor-in-Possession (DIP) Financing
Growth
Recapitalization
Refinancing/Restructuring
Buyout
Leveraged ESOP (Employee Stock Ownership Plan)
Working CapitalThe 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.
AcquisitionTo 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. Learn how Ames True Temper doubled its size through acquisition and asset-based financing.
Turnaround FinancingTurnaround 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. Learn more in the CapitalEyes article: "10 Turnaround Strategies for Rebuilding Corporate Value."
Capital ExpendituresCapital 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) FinancingDebtor-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. Learn more in the CapitalEyes articles: "Maximizing Chapter 11 Success: 5 Critical Areas For Chief Restructuring Officers" and "DIP Financing: Breathing New Life Into Ailing Companies."
GrowthTypically, 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.
RecapitalizationRecapitalization 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. Learn more in the CapitalEyes article: "The Pros and Cons of Dividend Recapitalization."
Refinancing/RestructuringWhen 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. Read more in the CapitalEyes article: "Finding The Right Restructuring Remedy For Middle-Market Turnarounds."
BuyoutA 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.
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