As we’ve highlighted previously, the marketplace of growth and venture lenders is fragmented and diverse with nearly 200 institutional lenders now participating. Underwriting for these lenders is largely based on enterprise value, future revenue, and VCs (who, how much, probability of a next round).
As for the asset-based lenders, well we can add another 175 institutional, non-bank lenders to the mix: but only when there are real, underlying assets. This market may be equally as fragmented and diverse as the venture lending market, with underwriting philosophies and terms varying widely depending on company profile, scale, and asset type.
Period Table of Asset Based Lenders
Generally less concerned with VC backing or even profitability, these lenders employ two structures: (1) lines of credit where availability is determined under a borrowing base using eligible accounts receivable and inventory (your standard “ABL” facility), and (2) term loans, reserved for “Specialty Assets.”
Loans against Specialty Assets can be a bit more nuanced especially as collateral migrates away from accounts receivable to assets such as FinTech loan portfolios, intellectual property, rebates or specialty equipment (like complex 3D printers or precision manufacturing equipment). There are quite a few lenders who offer both structures; in fact only 16 lenders do not offer something beyond a simple ABL line of credit. Below is a bit more on those playing in the Specialty Assets realm.
Subset #1: using A/R when an ABL facility is not available
Fibonacci's provide factoring facilities wherein the lender essentially purchases a borrower’s eligible A/R and returns cash when the customer repays the invoice (less a fee). PO' Boys offer purchase order and/or supply chain finance solutions (essentially provide availability to a borrower prior to invoicing). Factoring is easier to access.
Subset #2: capitalizing on the FinTech boom
Jerry McGuire’s provide portfolio financing to loan portfolios of Fintech lenders: most frequently consumer loans, SMB loans, and merchant cash advances.
Subset #3: finding creative value
Weird Al’s often go where no others dare and lend against esoteric assets, such as specialized equipment, intellectual property (commercial or infringement value), intangible brand or trademark values, and government rebates (really any asset that is deemed to have value and could be monetized if required).
While companies in middle market land often utilize asset-oriented structures to maximize loan options, venture companies should take note. These asset-oriented lenders typically don’t rely upon VC support, are accustomed to EBITDA-negative borrowers and are industry-agnostic. Think broadly, explore options – that’s why we’re here.