| The contraction in the credit market just does | | | | understand how it all works", you ask. Well, these |
| not seem to want to stop. It's almost Christmas | | | | lenders experience a high default rate, so first you |
| and the year 2009 is right around the corner. It's | | | | should know a couple of things about asset based |
| always been the case that if you are not the | | | | lenders: |
| perfect candidate for a loan or a sale leaseback | | | | 1. Asset based lenders collateralize themselves to |
| (on your equipment), then an asset based lender | | | | the hilt (normally a 2:1 ratio & sometimes |
| would one of your only options. Previously, there | | | | closer to a 3:1 ratio). These lending programs tend |
| were a lot more lenders that would consider | | | | to have a one in four default rate. This means |
| newer businesses (less than 2-3 years in business) | | | | that the lenders have to incur legal fees & all |
| OR business owners with less than perfect credit | | | | other fees required to recover the equipment |
| in the 550-650 range, but that's not the case | | | | (including fixing damaged equipment) 25% of the |
| during our credit crunch. Enter; the asset based | | | | time. It's costly, so that's why they collateralize |
| lending programs. | | | | themselves so heavily. Otherwise the asset based |
| Most all of the B & C business equipment | | | | lenders would not be able to stay in business. |
| lenders are either gone OR they've become an A | | | | 2. Asset based lending companies do not offer |
| lender. Remember, to be an A candidate you | | | | the prettiest of payment factors (obviously). The |
| need to have strong credit scores in the 680 or | | | | reason for the higher payment factors is simply |
| higher range, no bankruptcies, 3 or more years in | | | | because of the risk. 25% of the risky leases |
| business (sometimes 2 years works, but some | | | | default (in good times). It gets worse in bad times |
| lenders now consider you to be new if you have | | | | and lessors tend to recover damaged assets |
| less than 6 years in business), strong cash flow | | | | more frequently than they do during the good |
| supported by your business bank statements (or | | | | times. THE KEY is this; If you need money or |
| tax returns and financials), and you can't be | | | | equipment, DON'T focus on the cost. Focus on |
| buying what's considered soft equipment | | | | the gain. What will you gain if you get the capital |
| (equipment with a poor secondary market). | | | | you need? Can you turn $50,000 into $125,000 or |
| Unfortunately, most of the business owners | | | | more? If you're monthly payment or yearly |
| looking for credit to buy equipment or get some | | | | payments are more than what you gain, then it |
| working capital DO NOT fall into the A credit | | | | may not be the best timing. Conversely, if you're |
| category. With the B & C lenders gone, that | | | | paying out $2500 monthly for the new |
| leaves us with Asset Based Lending Options. | | | | equipment, but you've got contracts that will |
| What does that mean to you and your business? | | | | generate $4500, $6500, $8500 or more monthly, |
| It means you may be able to get the equipment | | | | then don't focus on the rate. Focus on the gain. Is |
| or cash you need. | | | | the glass half empty or is it half full? You're just |
| All equipment lenders are technically asset based | | | | not going to get A rates if you're not an A |
| lenders in that they have your equipment as | | | | borrower (but you will be one day). |
| collateral, BUT we're talking about lenders that | | | | Over the last several months to a year, the |
| only look at the equipment and NOTHING more. | | | | asset based lending programs have become more |
| So, they'll lend to businesses that historically have | | | | popular. All the middle of the road programs are |
| had a high default rate (like new businesses, | | | | drying up. Right now, you're either perfect or |
| businesses with poor cash flow, & businesses | | | | you're not. If you're not perfect, an asset based |
| with poor business credit and poor personal | | | | lending program may be just what you need to |
| credit). | | | | take your business to the next level during these |
| So now we know that there are lenders that will | | | | trying times. |
| help you, but "what else should I know to fully | | | | |