How Lenders Evaluate Asset-Based Loans

When business owners explore asset-based financing, they need clarity on what lenders really look for in evaluating a deal. At Celtic Capital, our approach is straightforward: we focus on the strength of the collateral, the realities of the company’s current financial challenges, and the vision management has for moving the business forward.

Beyond the Balance Sheet: Why the Company is Here

Many of the businesses that come to us have outgrown, or no longer fit, the criteria of traditional banks. This may be due to:

• Recent losses.
• A shortage of working capital.
• Rapid growth that has strained cash reserves.

The Three Core Factors in Every Deal

Whatever the reason for coming to us, while many elements are considered, three questions ultimately drive our decision-making:

• Is the collateral strong and sufficient?
• Will the financing provide the availability the business needs today?
• Will there be enough availability tomorrow to execute the company’s growth plan?

Evaluating Collateral Performance

As collateral is the foundation of every asset-based loan, we begin by examining:

• Accounts Receivable: What is the turn rate? Are collections current? Are there any customer concentrations?
• Inventory and Equipment: What is the quality, salability, and useful life of the assets available to secure the loan?

Looking Ahead: Evaluating Business Projections in Asset-Based Lending

We also look at the steps management is currently taking to address the issues that brought the company to us, and if there’s a plan in place going forward.

We evaluate management’s projections, not just historical results. Strong projections demonstrate that leadership has a roadmap, whether it’s stabilizing cash flow, funding growth, or restructuring operations.

The Role of Cash Flow in Asset-Based Financing

Cash flow determines how effectively the financing will support the business. At Celtic Capital, we look closely at whether the new line of credit will generate enough liquidity to move the company’s current and future plans forward.

In equipment-only financing transactions, cash flow is the primary repayment source. If future cash flow isn’t strong, the deal won’t be sustainable.

Cash flow plays a different role in Accounts Receivable (A/R) and Inventory Financing. While the collateral itself drives repayment, healthy cash flow is vital to cover operating expenses, reduce financial stress, and keep the business positioned for growth.

In every situation, we’re not just asking, “Can the loan be repaid?” We’re also asking, “Will this financing give the company the breathing room it needs to succeed long-term?”

Why Some Deals Don’t Move Forward

We are transparent about why we occasionally decline opportunities. The primary reasons are:

• Collateral-Related: The assets are not performing as expected, or there simply isn’t enough collateral to cover obligations.
• Cash Flow-Related: If projected cash flow is insufficient and no viable solution exists, the deal cannot move forward.

In many cases, we work with the borrower to explore solutions such as bringing in new capital, restructuring obligations, or collaborating with the bank to make the deal work. If those solutions are realistic and achievable, we proceed.

Celtic Capital’s Commitment

At Celtic Capital, our mission is simple: to find ways to get deals done. We’re known for taking on transactions that other lenders pass on and for structuring creative working capital financing solutions that make sense for both the borrower and the business’s future.

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 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 celticcapital.com.