FAQ's
What is Asset-Based Lending and how does it differ from other types of lending?Asset-based lending is a form of financing in which the lender provides funds secured by the business assets of a company that include accounts receivable, inventory, machinery and equipment, and in some instances, real estate. It offers companies an alternative to traditional bank financing because asset-based lenders are able to provide loans to borrowers with risk characteristics typically outside a bank’s comfort level. Some of these risk characteristics are personal or company bankruptcies, reorganizations, liens, judgments, losses, high leverage and companies that have been in business for less than three years. The basic credit criteria that banks follow would exclude companies in these circumstances from obtaining a traditional unsecured or cash-flow loan. Even with the higher risks associated with asset-based lending, the rates charged are only slightly higher than bank loans.
Asset-based lending is separate and distinct from factoring. Factors purchase invoices, require control of cash collections, typically contact account debtors and generally charge rates that are considerably more expensive than asset-based lenders. As an asset-based lender, Austin Financial’s loans are based on the underlying pool of collateral. We do not own your receivables. We provide a line of credit with your business assets serving as supporting collateral. Austin does not interfere with your relationships with your customers. You collect your invoices and the payments come to your office location.
As a long established and highly regarded asset-based lender, Austin Financial looks beyond financial statements in evaluating whether we will enter into a relationship with a borrower. We look at where a company has been and where it’s heading. We want to learn about the management team and understand the story behind the numbers. We are a true partner to our clients through challenging times as well as times of prosperity. The benefits of financing with us far outweigh the costs. There is no “red tape” with Austin Financial. We’re able to offer more streamlined processes and quicker response times. Austin does not require financial covenants for its borrowers, so our customers are able to focus on what they do best, selling their products or services. No time is wasted trying to manage the business to strict financial guidelines that banks or other finance companies require. Finally, Austin is able to take a much more flexible approach in structuring our loans and providing customized financing solutions.
What is the difference between accounts receivable financing and factoring?
Accounts receivable financing is closely associated with factoring; however, there are some significant differences between these two different types of financing. First, factors purchase individual invoices which involves buying the accounts receivables at a discount through a cash advance and keeping certain reserves to insure payment of these accounts. With asset-based lenders, advances are made on the underlying pool of invoices or accounts receivable. Austin does not own your receivables and does not contact your customers for payment and allows the business owners to collect their own invoices as payments go directly to the business’ designated location. Second, business owners maintain more control of the accounts receivables and customers because we do not require notification of assignment to a borrower’s accounts. Lastly, the pricing of asset-based lending is significantly cheaper because asset-based lenders are not involved in the collection process and rates are calculated on the loan balance rather than collateral balances.
What are the steps to obtaining financing with Austin?
The process starts with a phone conversation with one of Austin’s new business development associates. Generally, a transaction can be pre-qualified in a matter of minutes. Once qualified, Austin will ask for a customer package including current financial and collateral information. It is our commitment to process a complete package for a decision within 48 hours. If the requested transaction is affirmed, a proposal letter is issued outlining the terms of the deal. If the customer executes the proposal, a collateral audit is scheduled and formal underwriting begins. From the start of underwriting to funding of the transaction will typically take place in an average of 30 days, however, in certain circumstances, closing can be in as little as 14 days.
Does Austin require lockboxing of collections?
One aspect of the Austin Advantage is that we DO NOT require our customers to direct collections to a bank lock box. While most asset based lenders require a lock box, Austin’s customers process their own collections before depositing funds into the bank.
What is the range of typical Austin Loans?
Austin Financial typically makes loans ranging from $500,000 to $6,000,000