Recently, I’ve came across a few deals where my prospect has an asset based deal in place in order to fund the operations of their company. Simply put, asset based lending is a lending relationship where the lending is secured by the asset of a company. In my industry (staffing) the asset is often the company’s account receivable but can include the building the company operates out of (if they own it) and/or office equipment (again if they own it). However, if the staffing agency’s AR looks a little shaky and the company does not posses any hard assets guess what gets thrown in to the mix?-The agency owner/owners home or personal money set aside and tied up in a CD.
ABL while more expensive than a line of credit offers a rate tied to prime which rate wise is less expensive than a funding or factoring relationship. But is it really?? Well it can be- let’s delve in to a typical ABL deal and see if it truly is. First, there is an initial audit fee anywhere from 5k-10k. Next, during the course of the relationship the lending institution may perform random audits that cost the staffing company $750-$1250 a day. Once you are approved for the loan there is then an origination fee that is ¼ to 1% of the total credit facility. Let’s say business for the company is down-which is not too much of a stretch in a time like this. Guess what? That also carries a charge in the form of an unused line fee that is 1/8% to 1/4%. There are also chargeback/over advance fees that total 1%-1.5%. Lastly, when you are ready to end the lending relationship you have to pay a closing fee of 10k-50k!!!
In closing, aside from the fees the lending relationship is governed by restrictive covenants that include but are not limited to: not having more than 25% concentration among clientele, having an operating account set up with the lending institution, and maintaining a certain level of profitability. With that being said more and more staffing companies are being shown the door.
If you would like to discuss your current funding situation, you may contact Dan Stacy, Sterling Resource Funding Corp, at (516)-683-1434 or via email at email@example.com.