How Asset Based Lenders Evaluate a Deal

When you need to exit a client and want to refer them to an asset based lender, you might want to relay the following information as it will help your client understand how the lender is going to evaluate the deal. They can then better prepare for that evaluation.

At Celtic Capital, when evaluating a deal, first and foremost we look at the collateral and how it performs – i.e. if the accounts receivable are turning appropriately, if there are any concentrations, and what equipment and inventory the company has. Over and above that, we look at whatever problems the company is having that brought it to us versus a bank – i.e. if it had losses, if it doesn’t have enough capital – and then, what management is doing to fix those issues and if there’s an ongoing plan to fix them.

After looking at how the company is doing financially and what management is doing about it, we then want to see projections for moving forward. Projections are important because we tend to look more through the windshield and not the rear-view mirror. We want to understand the past but what we really want to know is what management is doing to fix the past, and where it sees the company going forward…and if that plan makes sense. If someone says they’ve been doing $5MM in revenue a year for the past five years and going forward they project $8MM, we want to know the rationale.

Next, we look at cash flow. We’re looking to see that if we put in the line of credit that management has asked for, if it will it provide the cash needed to make their plan happen. Cash flow is especially important in equipment-only deals as that’s the way the loan is going to be repaid. While cash flow is not as critical in A/R and inventory deals, it’s still extremely important to the overall health of the business.

Why Deals Are Turned Down
The main reasons a deal is turned down are because the collateral is not performing well (or not performing how we expected after our initial look at it) or there’s not enough collateral to solve the need or the cash flow going forward doesn’t work.  If it’s a collateral issue, then we go back to the borrower and tell them we don’t have enough to pay off the current lender and ask how they are going to deal with that – bring in new money? Will the bank sit back on something? If it’s a cash flow issue, we need to see how that’s going to be resolved. If the borrower answers in a way that makes sense and that we believe, we’ll go forward. But if there’s no solving the negative cash flow, we won’t come in.

We look at a host of other things – payroll taxes for example, but in terms of really doing the deal, it’s collateral, financials, cash flow…and people…management. We look for a management team that has expertise not just in the business itself but in the running of the business.

Celtic Capital’s Goal
With the goal of being a reliable and trusted resource for our referral sources, at Celtic Capital, we look for ways to do a deal, not turn it down. We’re known for doing the tough deals and for creating deal structures that work.

About Celtic Capital
Companies looking for working capital to cover operating expenses, fund growth, increase buying power and take advantage of vendor discounts and rebates turn to Celtic Capital. With an appetite for the more complex transactions, Celtic Capital has a history of success in crafting creative, flexible asset based financing solutions from $500,000 to $5 million with no financial covenants.

As an independent lender, working with companies nationwide, Celtic Capital is willing and able to alter price and deal structure and expand lines of credit to handle its clients’ increased revenues; and when cash flow is an issue, will look toward providing an inventory facility to help offset lost cash flow.

If you know of, or are, a business in need of non-traditional financing, contact Mark Hafner at 800.742.0733 or, or visit us at