Let’s set the record straight: Times have changed. Non-bank facilities such as asset based loans (ABL), factoring and even capital advances may not be getting the credit they deserve these days.
Given their historic application in the U.S. and a traditionally tight capital market, these forms of alternative financing used to carry some negative connotations. But today the way these financing products are used and the market in which businesses find themselves is a whole different world than when specialty financing was first introduced in this country.
ABL, factoring and capital advances can work for all stages in a business lifecycle. While sometimes they’re used to help companies experiencing difficulty, more often these flexible facilities are leveraged to help companies grow or expand, bridge seasonal gaps, make payroll, overcome credit blemishes and so many other challenges facing small businesses today.
To make the point, we thought it was worth addressing three of the biggest inaccuracies about ABL, factoring and capital advance products like the ones we structure daily at Gibraltar Business Capital.
1| It’s too hard to qualify.
Ironically, asset based lenders, factors and capital advance providers are sometimes thought of as playing in a tighter credit box than the bank, but the opposite is actually true. It can often be easier to get an ABL, factor or capital advance than a bank loan.
Institutional bank restrictions require a deep dive on all aspects of a business in order to qualify for capital. With our highly creative and flexible forms of alternative financing—whether it’s a one-time capital advance or an ongoing revolving line of credit—Gibraltar doesn’t rely on a perfect financial picture or business history.
Gibraltar’s underwriting criteria focus mostly on collateral, such as accounts receivable and inventory, as well as a company’s character before hard-and-fast financial requirements. That means you can have an unbalanced balance sheet or upside-down P&L statement and still be a viable candidate for this kind of capital.
2| I can’t afford it.
This couldn’t be more wrong—now. In the past the market looked different and there indeed were more limitations in alternative finance. However in our modern marketplace, where capital is copious, it’s all a measure of supply and demand. It’s cheaper and easier than ever for businesses to access cash when and where they need it most. As we’ve said before, asset based lending, factoring and capital advances are always cheaper than equity—and certainly cheaper than not growing at all.
Your time is also money. So when you can go direct to a non-bank lender like Gibraltar the process for accessing capital is significantly faster and more financially sound than waiting on a bank.
Likewise, any cost increase you must incur to get capital on the spot is only temporary. ABL, factoring and capital advances are short-term solutions, typically lasting no longer than a few years. With the right moves, you should be able to cover your needs easily and make that money back. Any proposal for a specialty facility should show you exactly how you will continue to make money during the borrowing period.
3 | I’ll get a bad rap.
One misconception that has been proven wrong time and time again is that any negatives previously associated with a factoring facility, for example, will be bad for business in the future. We can tell you from experience that accessing the capital you need on your terms doesn’t cause customers to jump ship. If you are doing right by your business, then you are doing right by your clientele.
One of our biggest challenges is educating companies about the new face of factoring, along with ABL and capital advances. As more and more organizations continue to get turned down by banks, the demand for specialty finance is exploding, making it a serious contender for delivering immediate access to capital.
Like Gibraltar, lenders who are serious about the future of the independent financing industry will rise to the top. The winners will be experienced, upstanding lenders who are passionate about building relationships with small businesses to promote growth or rebuild. They will care; they won’t judge you by your history; and they will be able to demonstrate the distinct value of their products.
Any lender who understands the evolving reputation of non-bank financing will get in or stay in the business for way more than just making a buck.