The Role of Collateral and Risk in a Lending Decision
When it comes to lending, lenders and business owners (the borrowers) look at things differently. Banks look at the credit risk of the borrower (balance sheet, P&L, financial ratios) while asset-based lenders focus on business collateral (A/R turnover, dilution, concentration) to assess risk.
Whereas business owners think their inventory is a goldmine, and assess value based on what they paid for it; asset-based lenders value inventory based on its liquidation value in a worst-case scenario. For them, risk assessment centers around the feasibility of the business plan and the strength of the collateral. They need to be confident that the collateral will cover the loan if the business fails. A much different perspective than that of the borrower, to be sure.
In order to enter into and sustain a successful lending relationship, borrowers need to look at their collateral and inventory in lender terms and be prepared to address potential concerns about their business plans and how they will manage risk. Demonstrating an understanding of the lender’s perspective, borrowers can improve their chances of securing the financing they need and the cash flow required to effectuate the Company’s business plan and achieve their business goals.
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 $8 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 mhafner@celticcapital.com, or visit us at www.celticcapital.com.