A CFO’s Perspective on Refinancing with Asset-Based Lending

eCapital Corp

Last Modified : Dec 17, 2024

Fact-checked by: Bruce Sayer

The refinancing of a business can be a daunting undertaking. There are a lot of factors to consider and decisions to make, combined with the ultimate disruptor: change. There are changes in processes in addition to many “unknowns.” If you are a business owner or chief financial officer, this can take too much time out of your already busy days of running a business.

We see this and are fully aware of how the process of refinancing isn’t always the most welcome of initiatives. Fortunately, there are lenders who make the experience as efficient and quick as possible, so that you can focus on growing your company.

Common fears we see as debt lenders

The most common fears we see in switching financial processes—especially to something like asset-based lending (ABL)—are the following:

• Fear of borrowing money and being in debt
• Fear of unknown processes
• Fear of losing control of cash (having a lock-box)

These reasons can be scary, but the option to refinance is so worth choosing for reasons we’ll discuss below.

Why a former CFO ended up choosing ABL

We recently sat down with our very own Senior Vice President, Andrew Hollingsworth, who is also a CPA and former CFO of Numi Tea. Andrew has been in your shoes, having refinanced a rapidly growing company, for which he ultimately chose asset-based lending. We talked to him about what he found especially beneficial with asset-based lending and why all his fears quickly dissipated once he learned how a change in process was indeed worth it.

What ABL offers

Ability to convert assets to cash more quickly

An operational line of credit could help monetize and convert to cash quicker so you can focus on the operational side of your growing business. This works especially well if you already have a strong equity backing and long-term debt to satisfy strategic needs of the business. (It should be noted this isn’t the only scenario it works for.)

Option to take something you own and monetize it

Consider, for example, accounts receivable and inventory. And although not commonly practiced, using intellectual property (IP) in your credit line is another option to consider—and which we provide here at eCapital. For consumer products, IP is the value of the branding and trademark—and being able to tap into that value—that has been significant for clients.

Opportunity to reduce your interest costs while accelerating your cash flow

You read that right. The win-win equation of reducing interest and financing costs while accelerating your cash flow and purchasing power is especially helpful to businesses that operate on a seasonal basis, such as stores that sell winter or summer-related products.

Becoming a stronger, healthier business

Think of an asset-based lender as becoming something of personal trainer—pushing you to become stronger and healthier that much more quickly. We often hear from clients who claim it creates a sense of efficiency that they didn’t have before.

Andrew was so happy with these processes because it helped him focus on what was critical for the business and how to manage it going forward. The processes truly ensured that he and his team were disciplined as a finance organization in terms of numbers. For example, they saw to it that factors such as day’s sales outstanding (DSO), inventory turnover, and aging were up-to-date. Over time, these processes became routine and the metrics allowed them to better manage the finances of the business.

Trust and transparency

Find a lender who is very “relationship-focused”—someone who listens and understands the needs of your business and can figure out how any problems can be solved, thus becoming part of the solution.

Where metrics are concerned, most finance companies tend to have different practices and procedures. Generally, the financial lender can help see the client through difficult situations and rough patches. Let’s face it: Despite a business’ focus on growth, tough situations arise for a variety of reasons and the lender should be willing—and able—to help.

Power to be flexible and dynamic

Another advantage to asset-based lending is the ability to be flexible and dynamic when needed. These lenders can act quickly, and aren’t subject to having to undergo a once-a-month credit committee. Client needs are addressed efficiently and upfront.

Stable and reliable “client/lender” relationship

When a business chooses a bank for a loan, its CFO can be bounced around between four-to-five different branches when conducting transactions—usually because the bank manager keeps moving. And this in turn means the CFO must learn the different processes and rules pertaining to that particular bank. In short, they don’t feel the love.  It’s important to choose a lender that has little (if any) turnover rate. Each client will be able to work with someone who has a grounded presence, and who won’t be switching locations in the blink of an eye.

Tying in with the importance of trust, transparency, and flexibility, this point is especially valuable to CFOs who want a more direct relationship with their lender and easy access to needed funds.

The “lock-box” could be a blessing

With asset-based lending, cash circulates through a blocked account—or lock-box. Essentially, the asset-based lender is giving the CFO client an advance on that cash. The cash that eventually flows back through the blocked account is equivalent to the client paying down that advance. Then, based on the borrowing base of the collateral, the money is being borrowed back.

One of the fears we see is concern over the drop-box. But during the pandemic, that lock-box has genuinely come in handy for our clients. It really helps in the management of cash flow.

Refinancing is not an overnight process

In addition to all the information presented here, when it comes to refinancing, time is a major factor that cannot be emphasized enough. The choice to refinance is not an overnight process. Time and attention must go into vetting different lenders and whether or not their processes align with the business that’s in search of a loan.

Questions will arise. Would a particular lender truly advocate for the business? Are there references or reviews from current or previous borrowers that can be checked? As we pointed out, finding answers to these questions require patience and time.

If you are a CFO who is considering a refinance, we hope this blog and the expertise of Andrew Hollingsworth have been helpful!

Learn more about how eCapital Asset-Based Lending solutions can help your wellness brand achieve the growth you desire.

eCapital Corp

eCapital Corp. is committed to supporting small and middle-market companies in the United States, Canada, and the UK by accelerating their access to capital through financial solutions like invoice factoring, factoring lines of credit, asset-based lending and equipment refinancing. Headquartered in Miami, Florida, eCapital is an innovative leader in providing flexible, customized cash flow to businesses. For more information about eCapital, visit eCapital.com.