What Bankers Should Tell Their Clients When Referring Them to an Asset Based Lender
Whether asking a client to exit the bank or if a credit request is not approved, we believe, when referring the relationship to an asset based lender, the direct, honest approach is best. The first step would be to clearly explain why the business is not bankable – is it because of balance sheet issues? That the business isn’t making enough money or is losing money? Is the growth rate an issue? Or is it simply the nature of the business? Whatever the reason, it’s best to be upfront about it.
That’s the bad news; the good news is that you have an asset based lender to whom you can make a referral which brings us to step two: describe what an asset based lender does – that it lends against company assets and is more concerned with how those assets perform than with the performance of the financials. Explain that financing with an asset based lender is an interim step and as the non-bankable issues are resolved, the company can return to bank financing.
Explain, too, that asset based lenders cost more than banks as they’re taking on the risk that banks won’t take; and that the company will face more reporting requirements as asset based lenders closely monitor collateral values. But remind them that they need to look at going to an asset based lender as a step to get back to bank financing; a rehabilitation period, if you will, and not a doom and gloom scenario.
A real benefit of asset of lending is that it instills discipline in financial reporting. If a company has some weakness in its accounting functions or reporting, asset based lenders provide guidance and the time for companies to straighten things out. It also gives a business time to improve its operational performance. The business owner should look at the time with an asset lender (usually one to three years) as an opportunity to improve the business by fixing the issues that got it in trouble and be stronger for it.
When explained correctly, exiting a client can be done with minimal fanfare and no hard feelings.
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.