What are Equipment and Inventory Loans?

Equipment Loans

Some Lenders offer loans secured by existing machinery and equipment on a stand-alone basis and others will offer such loans only in connection with a larger ABL credit relationship. These loans are typically paid back over a term – five years or a shorter duration depending on the useful live of the asset.

For in place equipment, a lender will typically require an appraisal from an “approved” appraisal firm and lend based on the NOLV or the forced liquidation value (FLV) of the M&E. Advance rates are typically 70-80% of FLV or NOLV.

Lenders also offer loans for purchases of new equipment and machinery - new capital expenditures - often called “CapEx” for short. Advance rates and the length of capex loans will vary based on the size of the purchase, the credit-worthiness of the borrower and expected useful life of the asset.

Inventory Loans

ABL Lenders will advance against the value of the inventory. Some lenders will only do loans for companies with Accounts receivable as well. There are also lenders who will do inventory-only or inventory-heavy lines of credit for companies that sell most or all of their goods through on-line e-commerce channels.

It is fairly common for lenders to require an appraisal of the inventory for loans in excess of $1 million and lenders tend to advance up to 50% of the cost of the inventory or 60-80% of the Net Orderly Liquidation Value (NOLV). Advance rates will vary depending on the type of inventory and certain categories may be “ineligible” depending on the category - raw materials, work-in-process and finished goods, customized products. Also, for e-commerce companies, where they sell their products (e.g., Amazon, their own website, other e-commerce channels) will also affect the advance rate.

FAQ

• To lend against inventory, ABL Lenders typically will want perpetual inventory tracking systems and will want to know where the inventory is located, where it is housed, etc.

• Many lenders will exclude in-transit inventory as part of the borrowing base, whereas others will include in-transit inventory under certain conditions – [e.g., proof of insurance]