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Small Business Loans & Factoring

Asset Based Loans

+ How are small businesses financed?

Small businesses are financed predominately through two ways: equity investments from angel investors and venture capital, and external debt from bank and personal loans. Younger firms tend to rely more on debt whereas equity investments make up only a small porting of their financing.

+ How can the funding be used?

Small business loans can be used in many ways to grow a business. Potential uses for these loans include real estate purchases, business acquisitions, equipment financing, working capital, and expansion. However, small business loans cannot be used for the purpose of real estate investment.

+ What is an SBA loan?

An SBA loan is a government-backed loan provided by a commercial lender. In order to receive the SBA loan, the borrower must comply with the SBA guidelines although the SBA does not actually make any direct loans itself.

+ Can a business still qualify for an SBA loan without collateral?

No, collateral is required in order to receive SBA loans. Some examples of collateral include equipment, real estate, accounts receivables, and in some cases even inventory qualifies.

+ What industries are eligible for an SBA loan?

Almost all industries qualify to receive SBA loans. However, companies that operate in insurance, real estate development, lending, and gambling, amongst others, are not eligible to receive small business funding.

+ Are there personal guarantees for small business loans?

Yes, personal guarantees are required to receive SBA loans. Almost all types of funding requires personal guarantees but small business loans do not necessarily require clients to provide validity guarantees.

+ Which businesses qualify for factoring?

Many businesses that provide services or sell goods use invoice factoring to access working capital. Factoring companies provide funding to businesses in many different industries including manufacturing, distribution, transportation, information technology, and more.

+ What invoices are eligible for funding?

Only invoices payable by another business, current, and unpledged invoices are eligible for factoring. However, not every single invoice has to be factored. Companies are allowed to decide which invoices they want to factor.

+ How quickly will funding be received?

Typically, it only takes 24 hours for the factoring company to verify the invoice and then provide funding. Factoring is one of the quicker asset based financing methods.

+ What is the typical advamce rate for invoice factoring?

Usually, factoring companies advance between 80% and 95% on invoices.

+ What are the benefits of factoring?

Many companies decide to use factoring because compared to other types of funding, it is easier and quicker. There is no debt associated with factoring and funding usually comes within 24 hours after invoice processing. In addition, there are fewer requirements to receive factoring compared to other methods.

+ How long is the commitment for invoice factoring?

Most factoring companies do not have long term contracts with their clients. However, most require a 30 day notice if the client wants to end the contract.

+ Is there a limit to how much funding a company can receive?

There are no limitation on funding as long as a company has invoices they need financed.

+ What types of companies are good candidates for ABL?

Good candidates will have asset-heavy balance sheets with a signifigant portion of their total assets in working capital. In addition, we look for companies with a strong management team that can provide reliable data on asset performance.

+ Which assets qualify under ABL?

Typically, accounts receivables and inventory qualify under ABL because they are highly liquid and easily monitored. However, some of these highly liquid assets are still ineligible for ABL. Past due accounts receivables and work in process inventory are just a few examples of these.

+ What is the difference between orderly liquidation value (OLV) and net orderly liquidation value (NOLV)?

Orderly liquidation value is the gross amount an asset can be sold for on an as-is, where-is basis. Net orderly liquidation value is the OLV net of the costs and expenses associated with the liquidation. The advance rate is typically written as a percentage of the net orderly liquidation value.

+ What is dilution?

Dilution is the difference between the value of the gross receivables and the cash collected on the receivables. It is expressed as a percentage and is extremely important because it helps the lender determine the advance rate.

+ What are Landlord Waivers and why do I need them?

A Landlord Waiver allows the lender access to facilitate liquidation of collateral. When the borrower files for bankruptcy, the lender has to deal with the borrower's landlord in determining the logistics of the liquidation.

+ What are the most frequent uses for ABL?

Larger companies typically use asset based lending for financing working capital. Mid-sized companies use ABL for working capital as well as term loans, which are secured by real estate and equipment. In addition, some companies will use ABL for acquisition financing and transitional capital.

+ How are ABL loans monitored?

One way we monitor the loans is through collateral reporting, which can include a review of invoices, accounts receivable aging, adn inventory listings. In addition, we audit the borrower's records to verify the validity of collateral review.

+ What are the differences between ABL and factoring?

Asset based loans are a line of credit that advance a certain percent of the total borrowing base. Factoring companies, on the other hand, purchase accounts receivables in exchange for a payment. ABL deals with longer-term loans, whereas funding from factoring is quicker, taking usually 24 hours to process.

+ What is the typical client size?

There are no size limitations for companies that want to secure asset based loans. As long as the company qualifies with our terms and requirements, they will be eligible to receive funding.

+ What are the differences between bank and non-bank ABL?

The main difference between bank ABL and non-bank ABL is the qualifying process. Bank ABLs have tighter restrictions on potential clients whereas non-bank ABLs do not have as much red tape and are willing to lend to companies that otherwise would have been turned down by banks.

+ What is the difference between a personal guarantee and a validity guarantee?

A personal guarantee is a promise to repay the loan if the company cannot repay it. A validity guarantee is a promise that the assets being financed are valid. For many asset based lenders, having a validity guarantee in place is more important than only having a personal guarantee by the clients.

+ What is cash dominion?

A cash dominion is a cash management system put in place by asset based lenders. A company's receivables receipts are sent to a lockbox, called the collection amount, which is controlled by the lender. These funds in the account are then used to pay the borrower's outstanding obligations from a disbursement account.

+ What is an intercreditor agreement?

An intercreditor agreement is an agreement between creditors of a shared borrower that establishes the rights of each creditor. These agreements are also used to establish payment prioritization and even may include clauses that allow one creditor to acquire the other lender's claims.

+ What are typical advance rates for ABLs?

Usually, lender advance between 75% and 90% of accounts receivables and around 50% of inventory. Here at Dwight Funding, we typically advance between 80% and 85%.

+ What is the debt structure of an ABL?

Asset based loans are considered senior debt because they are secured by various assets including accounts receivables, inventory, and even equipment and real estate. Each line of credit from an asset based loan is considered to be revolving debt and has priority during liquidation of assets.