Magazine article American Banker

Have You Thanked an Asset-Based Lender Today?

Magazine article American Banker

Have You Thanked an Asset-Based Lender Today?

Article excerpt

One of the events of this year that we should remember is the retirement of Leonard Machlis after 38 years as the executive director of the Commercial Finance Association.

The CFA is the trade association of the asset-based lending industry -- the people who do factoring and receivables financing to provide credit for those who cannot get direct bank loans without this collateral.

Most community banks do not have anything to do with these financiers -- until they worry about the credit quality of a loan request from a good customer, or when they are retrenching in a down economy. Then they send the potential borrower to an asset-based lender to avoid the credit risk while keeping a good customer happy. This helps explain why asset-based lending has risen from about $120 billion in 1994 to over $314 billion now.

Because they are the ultimate risk takers, CFA members are far more cautious than banks when it comes to evaluating the inventory and receivables that borrowers use as collateral. As Mr. Machlis told The Star-Ledger of Newark, N.J., recently, "When you do asset-based lending, you don't trust your mother if she is a borrower."

He explains the need for diligence by relating horror stories of fraud, such as a loan that was backed with a warehouse of "radios" that turned out to be nothing more than plastic shells.

A good asset-based lender goes on the premises and checks for dust on the inventory to see if there is enough turnover to justify the loan amount. Counting the number of coats being used as collateral by a furrier is as mandatory for an asset-based lender as looking at the balance sheet is for a commercial banker. …

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