Collateralizing Inventory for the Manufacturing Industry - Asset Based Lending

Asset-Based Lending: A Solid Solution for Manufacturers

The failure of the U.S. banking industry to support small businesses and mid-range corporations with lending solutions has been a topic of much discussion in the financial world over the past few years. Manufacturing companies have been especially hard hit by the lack of lending options available from traditional sources. In some cases, lines of credit have even been withdrawn or reduced, leaving smaller manufacturers with limited resources to manage their operations and meet their financial obligations.

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For these small businesses, finding a real alternative to banking arrangements is necessary to support the growth of many contenders in the manufacturing industry. An article published in November 2009 by Kiplinger, a leader in the financial field, outlines the increasing popularity of asset-based lending for companies struggling to obtain financing through traditional avenues.

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Kiplinger's Take on Business Credit

‍The article, entitled “Credit-Strapped Small Firms Turn to Asset Based Loans,” indicates that these alternative strategies for acquiring credit arrangements constitute only 5 percent of the business lending industry. While this figure may not sound very impressive, it represents a substantial gain over past percentages for these specialty lending institutions. With banks unwilling or unable to make loans to many manufacturing concerns, asset-based lending solutions are a solid source of funding that can be accessed even by companies with past credit issues and limited credit options in traditional lending environments.

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How Asset-Based Lending Works

‍Most manufacturers maintain a reserve of products and materials to ensure continuity of operations. These stored items and raw materials can be used as collateral to finance the workflows and activities of the company and to ensure sufficient cash reserves for upcoming obligations that may include payrolls, utilities and overhead expenses. When the products are sold, the asset-based lender retains the amount borrowed along with any fees or percentages due on the loan and remits the remaining amount directly to the manufacturer.

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In essence, these arrangements serve as a cash advance on the profits and proceeds that will be forthcoming on the sale of these products. Lenders enjoy near-total security for their loans, and the borrowers can access necessary cash immediately to maintain their business operations.

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Companies like 1st Commercial Credit and others in the asset-based lending industry can often provide funding for manufacturers even when traditional banks and lenders have denied them credit in the past. The lending professionals at 1st Commercial Credit can provide a decision within approximately 24 hours and can fund most loans within a week of final approval, making them an outstanding solution for cash flow shortfalls in the manufacturing industry.