Unlocking Growth Potential: How Asset-Based Lending Fuels Expansion for Mid-Sized Businesses

It may seem simple, but mention ABL to a mid-sized business, and it can conjure up a host of myths, misconceptions and misunderstandings.

Years ago, asset-based lending acquired a reputation as “creative financing” for troubled companies that may not have had the cash flow to support more traditional loans. Some people viewed an ABL loan as a “loan of last resort” and a very expensive financing tool. Even now, some see ABL as a tool designed expressly for large corporations.

The truth is that ABL can be a cost-effective, smart financing option mid-sized businesses can use to fuel growth. Whether in the form of accounts receivable financing, inventory financing or equipment financing, ABL can provide growth capital businesses can put to use in a variety of ways.

• Working capital. An infusion of cash at a critical time can help a manufacturer, distributor or service company manage day-to-day expenses and operations more smoothly, helping maintain focus on overall growth goals. ABL can also provide the funds to get over a hump or complete a large order, allowing a business to avoid obstacles that can slow growth.
• Gap funding. ABL can bridge the gap between outgoing cash for equipment and operations, and incoming cash from revenues. Dealers, for example, often must purchase vehicles or equipment, and receive payment much later, when that inventory is sold. Other companies routinely experience these gaps with seasonal business. Eliminating worries about gap funding allows businesses to pursue a more continuous growth path.
• Expansion. ABL offers an excellent option to help companies fund expansion initiatives, such as developing new markets, growing existing markets, adding product lines, building out human resources plans or implementing customer relationship management systems.
• Mergers and acquisitions. In many cases, ABL can provide the capital a company needs to execute acquisition strategies. Prudent, carefully executed acquisitions can help a company gain market share, new customers and a competitive edge. They can open up new growth areas through access to additional resources and can often generate immediate increases in revenue.

ABL features

ABL has significant features for mid-size businesses looking for growth capital. To start, ABL loans often are faster and simpler to obtain than unsecured loans or lines of credit. They also often bear lower interest rates than other types of loans.

Financing against assets (equipment, inventory, receivables) also usually means you can generate more funds than if trying to finance with just cash flow or earnings as a base. Those larger loan amounts can make a big difference in whether, and how, a company achieves its growth objectives.

ABL also offers flexibility and scaling, key for any growth-minded enterprise. ABL lenders don’t typically restrict use of funds, making the loans a good option for fast-growing and evolving businesses. With the ability to increase or decrease with needs, ABL can often accommodate business and economic shifts more quickly and easily than some other financing programs are able to.

Putting your assets to work for you

Mid-sized businesses looking for growth funding have far more options available today than even just a few years ago. ABL offers a modern take on how to put your own assets to work for you. With competitive, flexible financing, it can help a growth-focused mid-sized business maintain and increase its competitive advantage.

Mitsubishi HC Capital America is a commercial finance company that provides customized solutions to help organizations of all sizes accelerate growth. Our experts throughout North America are leaders in the innovative use of ABL. If you would like to find out more about how ABL can help fuel your company’s expansion and growth, contact us.