Asset-Based Lending: Alternative Financing for Hard-Pressed Business Members

By Roy Urrico

Asset-based lending (ABL) is a business financing option typically backed by tangible resources including accounts receivable, inventory, equipment, or real estate. Travelers Capital Corp. (TCC) offers asset-based loans as an alternative capital source to credit union business borrowers.

Vancouver, British Columbia, Canada-based TCC (DBA TCC Financial in the USA) has developed into a full-scope financier to borrowers facing a variety of traditional funding challenges. TCC works with financial institutions in the U.S. and Canada providing lending services to asset-based businesses.

Warren Miller, Travelers Capital Corp.

“We are not a bank or credit union and therefore are not beholden to the same federal regulations imposed upon banks and credit unions,” Warren Miller, chartered financial analyst and managing partner at TCC, told Finopotamus. “We can often deliver more flexible, creative, and nimble capital solutions. We specialize in structuring tailored tangible-asset business loans for a wide range of cashflow needs including buying equipment or vehicles, managing cash flow, restructuring, or overcoming financial hurdles.”

Credit Union Commercial Financing Challenges

“Credit unions pride themselves on providing the very highest quality of service for their members,” explained Miller. “But many commercial credit union members are frustrated with the complexity, slow pace, and rigidity of the commercial loan application process; they are dissatisfied when they get declined based a company’s less-than-perfect financials, and they’re dissatisfied with the covenants imposed upon commercial loans that do get approved.”

Why is this? According to Miller, many credit union commercial lending practices focus on large, complex commercial real estate (CRE) financing deals. “Federal regulations force credit unions to adopt conservative underwriting postures and rigorous application processes for loans like this.” Miller noted smaller loans challenged by cashflow challenges often face the same intensive process developed for CRE financing.

TCC presented some key asset-based lending credit union market drivers:

• Federal policy and regulatory scrutiny have compelled credit unions to build their commercial lending programs around complex CRE loans. “The result is an overcomplicated, inefficient underwriting and decisioning process that is a drag on credit union resources and impedes the flow of needed capital for smaller cashflow infusions,” said Miller.

• Many credit unions do not have a well-developed capability for delivering asset-based loans to members. Miller explained the discomfort most credit unions must tolerate underwrite financing based on the collateral asset value of a business' owned equipment, vehicles, and real estate rather than a borrower’s financial statement. The TCC approval process is much faster, and not reliant on a company's financial statement or credit rating. There are typically no complicated and burdensome covenants.

• Partnering with a trusted private asset-based lender enables credit unions to connect their members with rapid access to flexible capital solutions.

“Our financing can often be approved even if a bank or credit union has rejected the borrower based on financial statement factors. And it can be secured more quickly,” stated Miller.

Why Should CUs Make TCC a Referred Partner?

TCC relationship with credit unions (or banks) is typically through a referral. This enables the credit union to maintain the banking relationship with the business member. If the member needs the money, they will go somewhere for that funding.

Miller maintained there are plenty of alternative lending solutions for business members, that may not fit the traditional mold of the credit unions’ credit underwriting box today. “I know those boxes can be rigorous, they can fluctuate internally based on what is going on with deposits and risk weighted assets and all these different variables that factor into their adjudication systems. We are always sort of a bit more logical in our approach when it comes to just can we do a deal or not.”

By working through the credit union, through this reference program, the credit union maintains that relationship. Miller explained TCC has the flexibility, scale and the resources to really customize a loan for a specific business or organization.

In this referral connection, Miller noted the credit union still maintains the relationship. “It does provide (the borrower) with a solution to work with a private partner like ourselves and allows this company to continue to operate their business, give them an injection of working capital, yet still maintain that deposit relationship (with the credit union). It is sort of a mutually beneficial symbiotic relationship.”

Powerful ABL Connection

TCC uses technology to power this ABL service. “We pride ourselves on our ability to harness our 40 years of success to aid our data-driven underwriting decision-making,” Miller said. We have a proprietary database reflecting an unmatched knowledge of asset values and historical industry trends. With our proprietary analytics we can give a borrower a ‘red light/green light’ assessment in 24 to 48 business hours, faster than a typical auditor can complete their work. This is highly valued when borrowers are in need of fast financing.”

Frontline teams, such as business originators or salespeople, are among of the main sources of TCC business from credit unions or banks. However, Miller said that TCC also deals a lot with the specialized account teams such as collections departments. “We work really closely with those groups as well because they are saying, ‘Hey, we do not want to put this customer out of business. We are a credit union. We like working with customers. We want to maintain their relationship; we want to provide them options.’”

Miller also noted that TCC can provide a business in arrears with additional capital. “That can de-risk the credit union by getting those assets off their books. We get to pick up a new transaction while the credit union also gets a good referral.”

Said Miller, “My message to credit unions today, do not hesitate to reach out. You would be surprised in terms of how quick we can give a ‘Yes.’ Allow the client to live another day or achieve their financing goals. Versus just providing a hard ‘no’ or letting them sort of slowly deteriorate.”