Reporting Structure is One of the Biggest Differences Between Banks and Asset Based Lenders
When bank clients are asked to leave the bank, sometimes business owners ask what the difference is between being with a bank versus an asset based lender. Besides the obvious difference in pricing, one of the biggest differences is the reporting structure. The following should be helpful the next time you’re asked that question:
Oftentimes, banks require a monthly borrowing base certificate. The borrower takes its company’s receivables aging and based on the bank’s parameters, computes ineligibles to prepare the borrowing base. They do the same with inventory. The bank will then want to see the certificates and agings and whatever other requirements the bank levies usually by the 15th of each month. Depending on the state of the business, a bank may increase that frequency. Bank reporting boils down to a process where the borrower completes the certificate and the bank checks it.
Our reporting process has borrowers reporting anywhere from daily to weekly (their choice) with some exceptions depending on the business. Our borrowers go to our web portal and start with their A/R numbers. They input information since the last reporting cycle and the borrowing base is computed for them. To that, and also in the portal, they attach whatever documentation is required (aging, sales journal, etc.) and then just hit the send button. Internally, Celtic Capital calculates the client’s ineligibles as opposed to the borrower computing them.
Reporting is more frequent with asset based lenders than with a bank but oftentimes less onerous in terms of what is being submitted; and with Celtic Capital, the borrower isn’t calculating anything. Both banks and asset based lenders require financials. Typically, we get financials at audit if not in between.
Why is reporting different for banks versus asset based lenders? It’s because of the risk profile of the borrowers. Banks require less reporting because their borrowers are in stronger shape and things don’t change as rapidly with the business. Borrowers with asset based lenders are at a riskier point in their corporate lives. They’ve been through some sort of stress situation. As a result, asset based lenders need to be in a position to react quickly to daily cash flow issues and that’s easier to do with more up to date information.
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.