Types of Lending: Asset Based and Factoring

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Questions and Answers

Match the lending type with its characteristic feature:

Asset Based Lending = 3-6 months time to close Factoring = FICO not important SBA (Gov't Backed) = Blanket Lien on All Assets

Match the lending type with its typical rate:

Asset Based Lending = 7-12% Factoring = 1-4% SBA (Gov't Backed) = 10-25 years term

Match the lending type with its primary focus:

Asset Based Lending = Asset Coverage Factoring = 90% Advance Rates SBA (Gov't Backed) = Profitability

Match the lending type with its requirement:

Asset Based Lending = Audited Financials Factoring = Customers Notified/Non-Notified SBA (Gov't Backed) = Personal Guarantee Signup and view all the answers

Match the lending type with its common financial tools:

Asset Based Lending = Lock box Factoring = Strong Debtors on AR SBA (Gov't Backed) = Debt Service Coverage Ratio (1.25-1.5) Signup and view all the answers

Match the loan types with their corresponding requirements:

Mezzanine = Majority Ownership needed Equipment = FICO 630+ required RBF LOC = FICO 650+ required Signup and view all the answers

Match the loan types with their terms:

Mezzanine = 1-4 weeks to close Equipment = 1-3 years RBF LOC = Revolving Signup and view all the answers

Match the loan types with their rates:

Mezzanine = Tax Benefits Equipment = 12-24% Simple Interest RBF LOC = 1-3%+ per month Signup and view all the answers

Match the loan types with their required documentation:

Mezzanine = Personal Financial sheet Equipment = Limited Docs Needed RBF LOC = Limited Docs Needed Signup and view all the answers

Match the loan types with their closing times:

Mezzanine = 1-4 weeks Equipment = 1st year in business required RBF LOC = 1-5 days Signup and view all the answers

Match the loan types with their characteristics:

Mezzanine = $1 Buy Out Options Equipment = Non Dilutive RBF LOC = Flexible Ownership Rea's Signup and view all the answers

Match the loan types with their cash flow requirements:

Mezzanine = Profitability required Equipment = Profitability not required RBF LOC = Positive cashflow Signup and view all the answers

Match the following attributes of RBF (Revenue-Based Financing) with their descriptions:

No FICO Requirements = Lenders do not assess personal credit scores Time to close: 1-5 days = Quick funding turnaround time Profitability not required = Businesses can qualify even if not currently profitable Rate: 12-24% SI = Interest is calculated simply over the loan term Signup and view all the answers

Match the characteristics of RBF with their implications:

Limited docs needed = Less paperwork and documentation involved No Hard Assets = Financing not reliant on physical assets Non Dilutive = Does not require giving up equity in the business Flexible Ownership Required = Ability to have varied ownership structures Signup and view all the answers

Match the financial terms related to RBF with their definitions:

No Personal Guarantee = Borrower is not personally liable for repayment Will subordinate = Lender may take a lower priority in claims if needed Higher costs = Overall expense of borrowing can be increased compared to traditional loans Shorter Repayment terms = Loans need to be paid back in a relatively brief period Signup and view all the answers

Match the following payment features of RBF with their effects:

Positive cashflow = Cash inflow exceeds outflow, making repayments manageable Predictable payments = Fixed payment structure allows for better cash management 4 months TIB = Time in Business requirement is relatively minimal Term: 3-12+ months = Repayment period varies but is usually shorter than traditional loans Signup and view all the answers

Match the risks associated with RBF to their definitions:

Higher costs = May incur more fees and interest than other financing options Shorter Repayment terms = Increased pressure to repay quickly No Hard Assets = Absence of collateral may increase lender risk Limited docs needed = Less scrutiny may lead to higher risk for lenders Signup and view all the answers

Match the following benefits of RBF with their descriptions:

No FICO Requirements = Opens access to funding for businesses with poor credit Non Dilutive = Allows owners to retain full ownership of their company Time to close: 1-5 days = Immediate access to funds to seize opportunities Flexible Ownership Required = Accepts various types of business ownership structures Signup and view all the answers

Match the following attributes of RBF to their advantages:

Predictable payments = Helps in financial planning and stability Profitability not required = Supports growth businesses that are not yet profitable Will subordinate = Increases flexibility for borrowers with existing debts Rate: 12-24% SI = Provides clarity on the cost of borrowing over the loan term Signup and view all the answers

Study Notes

Types of Lending

Asset Based Lending

Focuses on profitability and asset coverage.
Involves a blanket lien on all assets.
Requires strong business credit and audited financial statements.
Involves a Master Service Agreement, field exams, inspections, and appraisals.
Lock box is used for payment management.
Upfront costs and closing time of 3 to 6 months.
Interest rates range from 7% to 12% and available as revolving credit.

Factoring

FICO scores are not crucial.
Targets B2B receivables with strong debtors on accounts receivable (AR).
Utilizes a Master Services Agreement and lockbox arrangement.
Customers can be notified or non-notified regarding the factoring.
Offers 90% advance rates with a closing time of 2 to 4 weeks.
Interest rates are between 1% and 4%, also revolving.

SBA (Government Backed)

Requires a minimum FICO score of 680.
Must demonstrate profitability and be in business for 2+ years.
Needs a comprehensive business plan and blanket lien on all assets.
Personal guarantees and life insurance are mandatory.
Strong business credit and personal financial statements (PFS) are evaluated.
Debt Service Coverage Ratio (DSCR) between 1.25 and 1.5 is required.
Typically a cumbersome process with a closing time of 3 to 6 months.
Interest rates range from 8% to 12%, with terms of 10 to 25 years.

Mezzanine Financing

Requires meeting DSCR and demonstrating profitability.
Down payment between 6% to 20%, with $1 buyout options available.
Majority ownership must be secured.
Requires a personal financial sheet, inspections, and internally prepared financial data.
FICO score must be 600 or higher.
Quick closing of 1 to 4 weeks.
Interest rates range from 6% to 20%+, with terms lasting 1 to 6 years.

Equipment Financing

Minimum financing amount is $100,000.
FICO score of 630 is necessary but profitability is not required.
Limited documentation needed, focusing on flexible ownership arrangements.
Positive cash flow and internal prepared financial statements are required.
Offers simple interest terms with rates between 12% to 24%.
Fast closing period of 1 to 5 days with terms from 1 to 3 years.

Revenue-Based Financing (RBF)

FICO score of 650 or higher required; profitability is not a criterion.
Limited documentation and no hard assets needed.
Possesses flexible ownership arrangements and non-dilutive structure.
Positive cash flow is crucial along with internal prepared financial statements.
Interest rates are 1% to 3%+ per month, with a closing time of 1 to 5 days.
Revolving terms.

Minimum Requirements for RBF

No specific FICO requirements.
Closing time is between 1 and 5 days with profitability not necessary.
Interest rate of 12% to 24% (simple interest).
Limited documents are required for processing.
Terms range from 3 to over 12 months.
No hard assets needed and non-dilutive financing structure.

Banking/Institutional Financing Criteria

Requires a FICO score of 720 or higher and profitability.
Business must be established for 2+ years with adequate asset coverage.
A detailed business plan and blanket lien on all assets are essential.
Personal guarantees and life insurance are typically required.
Strong business credit is crucial in a cumbersome application process.
Relationship with deposit accounts is beneficial.
Closing time of 3 to 6 months, with rates between 6% to 12%.
Terms can vary from 1 to 10 years.

Additional Items for Consideration

Young businesses operating for less than two years may have more stringent requirements.
Key aspects include ownership structure, industry type, and financial history.
Projections for ROI and loan purposes are necessary to assess needs.
Must maintain accurate business tax returns, year-to-date financials, and debt schedules.
Accounts receivable and payable (AR/AP) performance will be evaluated for lending decisions.

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Description

This quiz explores the key concepts of asset-based lending and factoring. It covers profitability, asset coverage, and terms of loans, along with detailed aspects such as borrowing rates and time to close. Test your knowledge on these essential lending types.