In the last ten days, I have been referred to four distributors and manufacturers for asset based lines of credit for amounts ranging from $1 million to $8 million. Included in the group are a manufacturer of cosmetics, a distributor of building supplies, a produce distributor and an electronics manufacturer.In each case, these companies generated losses in 2008 and have been asked by their incumbent bank lenders to find a new source of funding. Across the board, the borrowers have already reversed their losses by taking actions to reduce their direct costs and overhead. However, the banks have either used the expiration of the credit facility or a breach in financial covenants as reason to terminate their lending relationship nonetheless.
When I spoke with the bank lenders, they cited a tightening of credit criteria or lender fatigue as the primary reason for asking these borrowers to find a new home.
I'm in the process of screening each of these asset based funding opportunities with banks, commercial finance companies and factors. Given that each has assets to offer as collateral (receivables, inventory and equipment), each of these borrowers will find a new lender. The issue will be at what cost. I expect that some of the borrowers will attract new loans in the 8% range while others will pay interest rates in the mid teens.
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Tags : manufacturer , distributors , lines of credit , asset based loan , factoring , accounts receivable , PACA
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