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Asset-based financing another option for capital

If you own a business and need capital, the key to getting enough of it might be right there on your shelves, or in your warehouse, or already on your books.

It's called asset-based financing, and with it, you can tap into unrealized borrowing power, in many cases to a greater extent than you ever thought possible.

Asset-based lending is a flexible way of raising capital by matching a business' assets to its borrowing needs. Unlike a traditional loan -- which usually relies on an evaluation of your cash flows, profitability and net worth -- asset-based loans use current assets (receivables and inventory) or fixed assets (equipment and real estate) as collateral.

The bank then works closely with the borrower to monitor the value of the collateral and minimize risk to both parties.

Discovery Bank, with offices in San Marcos and Poway, is an expert in this specialized field of lending. Businesses in many markets have to go to large money-center banks to find the expertise it takes to structure an asset-based loan.

But in the San Diego area, that expertise can be found among the senior staff of Discovery Bank. And as a community bank, decisions on asset-based loans are made quickly and locally.

Loans can be structured on either a revolving or term basis. With a revolving term, accounts-receivable financing offers a way to convert sales into immediate cash, using the value of the receivables as collateral. Loan availability grows as sales increase, and no scheduled fixed payment need be made against the principal balance. As the business grows, so does the credit line.

When structured on a fixed-term basis, equity in fixed assets is converted into a new source of usable cash, secured by the assets.

Asset-based loans normally don't include many of the covenants found in traditional loans, giving borrowers greater control in managing their business. Other highlights and features of asset-based loans include:

* Many kinds of businesses are candidates for asset-based loans, including service businesses, wholesalers, distributors, importers, exporters and manufacturers.

* Loan proceeds can be used for many purposes, including working capital, debt restructuring, mergers and acquisitions, equipment purchases, seasonal cash shortfalls, leveraged buyouts and real estate acquisition/expansion.

* A variety of assets can be collateralized, including accounts receivable, inventory, machinery and equipment, and real estate.

* Borrowing limits vary by asset type. Generally speaking, Discovery Bank will lend up to 80 percent against eligible accounts receivable, up to 50 percent against eligible inventory, and up to 100 percent of the liquidation value of machinery and equipment as determined by an appraisal. The exact rates and amounts are determined during underwriting process.

To learn more about how you can put your company's assets to work, call Joseph Carona, chief administrative officer at Discovery Bank, at (760) 736-8900.

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