Asset-Based Loans: 3 Industries with the Most to Gain


Asset-based loans: providing working capital for manufacturers, retailers and service providers


Asset-based lending provides working capital in order to facilitate expansion, replace an existing credit line, weather seasonable gaps, and/or support a turnaround. While these situations affect a wide variety of businesses, there are three industries in particular that can easily gain cash flow liquidity with an asset-based loan: manufacturers, retailers and service providers.

Asset-based loans typically leverage one or more forms of collateral: machinery, equipment, inventory and/or accounts receivable. Therefore, businesses in the manufacturing, retail and service industries have the clearest path to understanding the assets that can provide them with working capital via an asset-based loan. Let’s take a closer look at each of these industries and the types of collateral these businesses can leverage for an asset-based loan.

Asset-Based Loans for the Manufacturing Industry

Most or all manufacturers have one thing in common: machinery and equipment (M&E). While the type and value of M&E will vary from industry to industry and business to business, in the manufacturing industry, it is almost always the highest valued asset to leverage for capital. This makes an asset-based loan ideal for manufacturing industry finance.

However, a very important aspect for manufacturers to keep in mind when seeking an asset-based loan is the amount their M&E will provide in terms of liquid capital. Below are several questions that most asset-based lenders and third-party appraisers will take into account when assigning a valuation to your manufacturing equipment:

  • What is the age and condition of equipment?
  • Is the technology current or will it soon become obsolete?
  • Is the equipment highly specialized/customized or is it easily integrated/utilized by another business or industry?

Another consideration is the percentage and type of liquidation process the lender is using to assess the overall value of your manufacturing equipment. For example, a forced liquidation assigns the lowest value, because it assumes an expedited (30-90 day) selling period. Whereas, a fair market value offers the highest value, because there is no cap on the timeframe to liquidate. However, a lender that offers 75% of the forced liquidation value on your equipment could be offering the same amount of capital as another lender offering 50% of the fair market value, so it is important to consider both the percentage and type of liquidation.

Manufacturers may also have untapped liquidity in the next form of asset capital: inventory.

Asset-Based Loans for the Retail Industry

While manufacturers primarily have inventory in the form of raw materials and work-in-progress goods (both of which can be valuable in an asset-based loan), in the retail industry, inventory consists almost exclusively of finished goods. Finished goods typically have a higher value for the purposes of an asset-based loan, providing strong leverage for retail industry financing. Just like M&E, though, there are several key considerations that can greatly affect your retail inventory’s value.

  • What is your inventory turnover? Do you have a lot of items with few sales (low value) or are you consistently cycling through your available inventory across most/all SKUs (high value)?
  • What is your inventory mix? Does it consist of the most popular colors, styles, features, etc. or do you have a large number of slow-moving items?
  • Does any part of your inventory face issues regarding seasonality, technology obsolescence, a fading trend, fad or other niche market?

As a retailer, an inventory accounting system will help you track and analyze the metrics listed above, and most lenders will require this information before committing to a loan valuation.

As with M&E, advances on retail inventory are dependent upon the percentage and type of liquidation process (e.g. forced liquidation, orderly liquidation, fair market value, etc.) the lender is using.

If machinery, equipment, and inventory aren’t enough to “bridge the gap” to your capital needs, there is another form of asset that manufacturers, retailers and service providers can tap into: accounts receivable.

Asset-Based Loans for the Service Industry

Unlike manufacturers and retailers, most service providers don’t have significant amounts of capital tied up in tangible assets like machinery, equipment or inventory. However, one thing any successful service provider will have in abundance is accounts receivable, which can be leveraged to attain service industry financing.

When reviewing your receivables for an asset-based loan, lenders will pay particular attention to:

  • Aging – The number of days each invoice has been outstanding.
  • Concentration – The percentage of total outstanding invoices that each client owes.
  • Dilution – Do you require sign-offs or other documentation to prove the work was completed in order to avoid receivable dilution (payment lower than what was billed).

In the service industry, receivables can be part of an asset-based loan that includes other types of collateral, or in a standalone factoring arrangement. Asset-based lenders and factoring companies typically advance around 80% of the receivables value for any invoices less than 90 days (unless your service company offers extended terms to your clients, in which case the lender may make an exception).

Whether you are leveraging accounts receivable, inventory, machinery and/or equipment for an asset-based loan, your manufacturing, retail or service business stands to benefit from additional working capital.

With over 40 years of experience providing asset-based loans, Accord Financial understands the challenges faced by companies in the manufacturing, retail and service industries and can help your business leverage its assets to get the working capital it needs.

Give us a call to discuss how your company can benefit from an asset-based loan.

Do you have a question or ready to take the next step?