Retail lending

Retail lending benefits

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Retail businesses usually maintain active goods for sale to customers. The retail industry can benefit from retail lending from trusted asset-based loan partners. Asset-based lending (ABL) may provide cost-effective debt solutions to small and medium-sized companies at all stages of the retail business cycle. In some instances, retail lending will be arranged by an asset-based loan syndicate. The primary lender can either act as a sole lender or as a member of the loan syndicate (e.g. ‘club executions’) or assist the retailer by underwriting and arranging transactions in the capital markets.



Internal and external financing solutions for retailers. Financing a retail business is sometimes a complex process. According to the editors of “Handbook of Integrated Risk Management in Global Supply Chains,” retailers may require internal and external financing. Internal financing may involve one or more suppliers extending favorable terms to the retailer. This mutually beneficial retail finance strategy helps the supplier sell more goods as the retail business acquires inventory. The internal supplier has financial insight into the retailer’s business. Conversely, an external lender (e.g. a bank or asset-based lender) has less insight and fewer questions about the retail operation. The borrower offers collateral to secure the loan: the lender has many fewer questions about daily operations. Lenders arrange revolving lines of credit depending upon the valuation of retailer’s inventory/receivables or term loans based upon the retailer’s fixed assets (e.g. machinery, real estate or equipment).

Asset-based lenders and intangible assets. Some well-known retail companies may hold valuable patents, licenses, royalties or trademarks, and asset-based lenders or traditional lenders may also choose to loan against these ‘intangible’ assets.

Cash flow financing for retailers. In addition, lenders to the retail industry may choose to rely upon the company’s historic operating performance, competitive leadership and position, or strength of management when arranging loan funds. Lenders may also accept the retailer’s senior secured debt after thorough analysis of the retailer’s cash flow drivers.

Stretch asset-based loans for retail businesses. According to Jonathan and Melissa Wooller in “Finance and Funding Directory,” (2012) the asset-based lender is likely to consider a variety of assets (stretch asset based loans) and other hybrid structures. Arranging the loan facility requires an audit of assets for valuation purposes. Combining various assets can help the asset-based lender to offer a competitive interest rate.

An over-advance loan (also called a senior stretch loan) is a kind of hybrid debt instrument using dual debt underwriting standards of a cash-flow loan and an asset-based loan. The senior stretch structure is advantageous to many retailers because the lender takes advantage of the retailer’s mix of assets, such as receivables, equipment, inventory or equipment to secure the senior stretch loan. Alternatively, the loan may be secured by a combination of two or more of these asset classes (e.g. accounts receivable and inventory). Asset-based lenders consider all of the assets available to the borrower when repaying a loan. Before the global financial crisis of 2008, some asset-based lenders underwrote a high percentage of subprime loans. Today’s lending practices take all factors into account to create a mutually beneficial retail borrower-lender relationship for years to come.

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