Asset Based Financing is a favored method of financing illiquidity for start ups, small to medium sized businesses and for any business that simply can’t get or has insufficient bank lines available.
It simply consists of companies selling their accounts receivable for immediate cash. In order for a business to grow it needs a strong reliable cash flows. Without available cash, a business remaining without cover for all its weekly and monthly expenses, is doomed.
Here are the 16 requirements applicants need to complete or provide before approval to receive funds.
- Clients need to submit a standard application.
- Information must include a current aged accounts receivable list.
- A clear legal description of the entity to be factored
- Identification of all directors and Officers of the company.
- A legal search is done to determine if AR securities are available for registration.
- Details of all customers or debtors must be provided
- All banking information.
- Personal statement of assets and liabilities.
- Any contracts or special arrangements that need to be respected.
- All sales need to be final with no consignment sales being factored.
- A general description of the nature of the clients’ business model
- Clients sign a standard guarantee as is always required by banks of loan institutions
- CRA Source Deductions and GST payment need to be up to date. Negations can be made by the factor on behalf of the client.
- Clients should preferably be incorporated although Sole Proprietors and Partnerships are funded.
- If clients suffer from bruised credit, they should describe the reasons for that.
- Any industry is acceptable except construction, software development or valuable jewelry.
A factoring specialist will be able to help you understand in more detail each of these requirements.
Asset based factoring gives business owners access to immediate cash, leveraged against their creditworthy clients. In light of today's credit environment, more and more businesses are looking to factoring their receivables in order to allow them to grow in the short term.