by Bron D. Hafner
(TMA International Headquarters)
When your client’s company needs working capital, but
banks can’t or won’t help, alternative sources of funding are available. Asset
based lenders are one possible source; they’re not regulated like banks and can
step in and
help troubled companies
have outgrown their bank’s willingness to extend credit.
The question then becomes which asset based lender to choose. Because asset
based lending is an unregulated industry, it’s important that lenders are
checked out with as much diligence as a turnaround manager would use to
investigate prospective employees. As is the case with any industry, there are
always going to be a few unscrupulous people who will try to take advantage of
companies in tenuous situations. The following are several proven ways to help
protect your client:
Verify that the lender is a direct
lender . You want to confirm that the
lender you’re considering is a direct provider of funds, not a middleman or
broker who has to get the money elsewhere. You want all contractual arrangements
for the repayment of funds to be directly between your client and the
Meet with senior management. These individuals are the decision-makers. Be
sure they have strong backgrounds in asset based lending and have the ability to
assess and understand your client’s situation in order to provide exactly what
your client needs. In addition, assess the depth of their expertise. Everyone
involved with the day-to-day operations of your client’s account should be
adequately familiar with lending regulations and practices in order to avoid
unnecessary problems down the line.
Check references. And, go beyond just checking the lender’s client base. Many
asset based lenders get the majority of their clients through referrals from
bankers, CPAs, attorneys and turnaround consultants. Talk with some of these
professionals about the asset based lenders you’re checking out and see what
they have to say. Even if they have no direct experience with a particular
lender, chances are they’ll know how that lender is perceived within the
While you’ve been checking out the lender, they have been assessing your
client’s needs and in all likelihood, have provided you or your client with an
initial proposal. When a lender meets with your and your client’s satisfaction,
and your client is comfortable with management and the personnel who will be
assigned to the account, efforts can then be directed toward evaluating other
issues which are also critical in the selection process. It’s unfortunate, but
when evaluating a lender’s proposal, many professionals focus on the interest
rate quoted as the primary issue in choosing an asset based lender when, in
fact, many other issues are at least as, or even more, important.
One of the most important things to keep in mind is that asset based lenders
are selling a commodity—money. And, everybody else in town has the same
commodity. It becomes a question of what the lender does to add some value to
turn a lending transaction into a relationship. That’s not to say that the cost
of funds is not important; however, the lender’s willingness to provide
sufficient funds structured to the company’s needs, along with people to help
utilize the funds properly, are actually more important. After all, if a company
doesn’t get the right amount of money and help with how to use it, then it
really doesn’t matter what the money costs. The turnaround professional can be
of great help in assisting their client in keeping the cost of funds in
perspective and in evaluating all of the issues to determine what’s truly best
for their individual situation. With that in mind, the following are some
additional issues to consider when evaluating asset based lenders.
Is the lender flexible? Will they structure the loan to meet your client’s
specific needs? Some lenders are more creative than others and will look for
ways to make the deal work when others will not.
How long is their response time? How quickly can the lender provide initial
funding? What some lenders say they can do, and what they actually do, may be
decidedly different. See what the lender has done historically by asking
clients, and by specifically asking the lender, to tell you the average
turnaround time for all clients, from initial contact to receipt of funding.
How accessible is senior management? When your client needs an over-advance,
will fast answers and funds be available when needed?
What will be the nature of the
relationship? Will personalized attention be
provided by people with a reputation for honesty, integrity and who work to help
their clients re-qualify for traditional bank financing?
Is the lender more than a lender? Do they offer a value-added benefit of
providing insight that will help your client improve the company’s financial
are many important issues to consider when evaluating asset based lenders. When
you take a look at all of the issues and compare one lender to another, choosing
the right one will be much easier than you think.