The terms of an asset-based loan depend on the nature and value of the assets offered as collateral. Lenders prefer highly liquidated collateral, such as securities, which can easily be converted into cash if the borrower does not default the payments. Loans using tangible assets are considered riskier, so the maximum amount of credit is significantly less than the book value of the assets. The interest rates charged vary considerably depending on the applicant`s credit history, cash flow and the duration of the activity. Factoring depends on your client`s creditworthiness, not yours. It does not require a long-term commitment, can rely on converting invoices into cash in 24 to 48 hours and generally requires less paperwork than a bank loan. In the example above, the lender agreed to extend a revolving line of credit of up to $100,000. The amount a company can borrow each month is determined by the calculation of the credit base, which takes into account a large portion of the customer`s R/A and half of its eligible stock. To use the line, the lender charges 12.5% interest per year to a company, in addition to the commitment and closing fee of 1%. The duration of the installation is 5 years. Availability – The additional resources that the lender will advance as part of the credit facility.
The amount is often the difference between the amount of the loan commitment and the remaining balance to be liquidated from the credit facility. Many businesses have to borrow or obtain lines of credit to meet routine liquidity needs. For example, a company may obtain a line of credit to ensure that it can cover its wage costs, even if there is a brief delay in the payments it expects. The interest rates on asset-based loans are lower than those of unsecured loans, as the lender can recover most or all of its losses in the event of the borrower defaulting. However, even large companies can sometimes look for asset-based credits to meet short-term needs. The cost and lengthy time to issue additional shares or bonds on the capital markets may be too high. Cash requirements can be extremely timed. B, for example in the event of a large purchase or unexpected purchase of devices.
Purchase Money Guarantee (PMSI) – The Single Code of Trade (UCC) states that, despite the existence of financing declarations on similarly described security, the creditor may enhance a security interest in the commodity when a creditor provides financing to a debtor for the purchase of certain goods. Non-notification – The bank does not inform the borrower`s mortgaged accounts that they must transfer payments directly to the bank. In case of identical non-notification, a layout of the closing box is often available. The bank may also authorize the borrower to recover the payments and transfer them to the bank in order to obtain credit against the balance of the credit. While we have provided an overview of best practices for legal advisors when negotiating ABL credit facilities, there are several other unique features of ABL credit facilities that merit further review by counsel.