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When the bank says ‘No,’ it can still say ‘Yes’

When the bank says ‘No,’ it can still say ‘Yes’

source: Fort Worth Business Press , July 05, 2010


 Despite bank bailouts from Washington, D.C., credit for small and mid-sized businesses remains extraordinarily tight. For many banks, the lending pipeline is simply too clogged with “non-bankable” loans to even consider relaxing their credit standards for new loans, even for their existing customers.

It is a situation that not only frustrates borrowers, but also creates a conundrum for local banks. On one hand, most banks simply are not in a position to make questionable loans to companies with tied-up capital, limited collateral or weak earnings. On the other hand, banks do not want to lose the opportunity to service – or continue to service – a company’s treasury, deposit accounts, lock box, sweeps and other day-to-day banking products.

How can a bank loan officer say “no” to a company’s lending needs and yet still preserve the relationship with the borrower? What can a company do to secure a credit facility for working capital when its current bank isn’t an option?  

The presence of a third-party, asset-based lender may provide the answer to both questions. With an asset-based lender, a non-bankable borrower often can secure necessary working capital its bank can’t provide. As a result, an asset-based lending source may help clear the way for a bank to instead service the customer with basic treasury services.

In a sense, an asset-based lending source can turn a bank’s “no” into a “yes.” 

Unlike a bank, an asset-based lender’s underwriting criteria focuses on a borrower’s collateral (hence the term, asset-based lenders), not on cash flow or profitability. 

Many asset-based lenders are unregulated, thus they operate with much greater flexibility than typical banks. Plus, asset-based lenders loan their own money. As a result, they closely monitor their borrowers and their assets on a daily or weekly basis. Businesses that understand this up front – before they meet with an asset-based lender – inevitably are more comfortable in the relationship.

Because asset-based lenders are transaction-oriented and not relationship-oriented, a bank is able to refer a borrower to an asset-based lender and still maintain the “lead” in the relationship with the borrower. In time, the challenges facing the business will be solved, leading a business to return to their bank for their future credit needs. In the meantime, the bank can service other segments of the borrower’s needs and hence maintain the borrower’s trust throughout the entire process. 

From the borrower’s perspective, a good asset-based lending partner should present the same benefits a typical bank presents to a borrower. Does the asset-based lender in question present immediate access to its decision makers? Does the asset-based lender understand the local marketplace?  Are its decisions made locally? Are there certain industries the asset-based lender focuses on? Are there some they exclude?   

Similarly, banks looking to forge a relationship with an asset-based lender should consider several factors as well.  

For example, can the bank loan offer be confident the asset-based lender will handle the situation in a trustworthy manner? Will the asset-based lender get its decision makers involved so the process doesn’t get bogged down in bureaucracy? Will they move quickly? Do they finance enough different kinds of assets to provide a complete solution to include real estate, accounts receivable, inventory and equipment? Are they a broker or do they make and keep the loans themselves? In other words, will the referring bank lose control of the relationship if someone else is really making the loan? Is the size of the transaction within their “sweet spot,” or is it too small or too big?

To be certain, these and other considerations should be addressed before a bank refers its borrowers to an asset-based lender.  

However, if an asset-based lending source can address the concerns of both the borrower and the referring loan officer, then there is a good chance of a win-win partnership that can turn that “no” into a bankable “yes.”