Asset-Based Lending and Bankruptcy—Here’s All You Need To Know!

If you’ve filed for bankruptcy, the chances of finding new financing may seem slim. And this is even true, particularly when it comes to conventional financing. Most lenders see it as a major red flag.

However, your business might be able to qualify for asset-based lending while your case remains open in the court. Here’s a five-minute read that contains everything you need to know about asset-based lending during a bankruptcy:

Asset-Based Lending—Does it work?

In many cases, bankruptcy is filed to reorganize a company’s unsecured debt. In such cases, it’s unlikely that the court will decide to hold on short-term assets such as inventory and account receivables to pay off lenders.

Therefore, you might be able to use your current assets to enter into an asset-based lending arrangement. The lender will use a dilation method and calculate the advance rate to establish the value of your assets, which will decide the amount of the loan.

The lender will also take other factors into consideration—for instance, a history of bad debts, cash discounts, and return claims—to get a more reliable estimate.

Finally, the dilution rate is multiplied by the factor of two and increased by five percent to determine the advance rate.


The court’s approval is necessary!

In order to get financing, you will require a court’s approval. A judge will oversee the case, understand the facts, and decide whether you are eligible. If the judge approves, you will be allowed to get financing, which is known as debtor-in-process funding.

The asset-based lender is likely to approve your loan, as previous creditors will not have the right to the current assets—including accounts receivable, inventory, or other qualifying assets—of your business.

Uses for Asset-Based Loans during Bankruptcy

Once you’re granted the asset-based financing, you need to carefully plan how to use the money efficiently. You primarily need to fund your business expenses and look for ways to improve your business’s performance.

This can be achieved by expanding into new markets, running campaigns to increase sales volume, or a merger with other companies for synergy benefits, and more. This will help your company to remain a going concern entity until your debt issues are resolved.

Global Capital Partners Fund LLC is a reputable private lending firm in NY that provides commercial real estate financing on flexible rates. The company also provides custom asset-based lending to businesses who want to fund their working capital, grow their business, or increase their liquidity. Give us a call at +1-800-514-7350 to find out more.

Categories: Asset Based Lending

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