Bron D. Hafner

When your company or your client's company needs working capital, and banks are turning a deaf ear, you need to start looking for an alternate source of money.

One option is an asset-based lender that provides capital secured by company assets like accounts receivable, inventory, and equipment, to name the most common.

Since asset-based lenders are not regulated like banks, they're willing to help companies with short operating histories, poor financial ratios, or those that have outgrown the willingness of their bank to extend credit.

The question is, how do you know which asset-based lender to choose?

Because asset-based lending is an unregulated industry, it's important that you check out the lender with just as much diligence as you would investigate a prospective employee. As in any industry, there are always going to be a few unscrupulous people who will try to take advantage of companies in tenuous situations.

The following are some proven ways to protect your company or your client's company.

? Confirm the lender is indeed a direct lender. You want to make sure the lender is a direct provider of funds, not a middleman or broker who has to get the money elsewhere.

You want all contractual arrangements for the repaying of funds to be directly between you and the provider. You don't want to be involved in any potential problems that might emerge between the lender and the middleman.

? Meet with the management of your prospective lending institution. These are the decision-makers. Be sure they have a strong background in asset-based lending and have the ability to assess your situation in order to provide exactly what is needed, when it is needed.

Assess the depth of their expertise. Everyone involved with the day-to-day operation of your account should be adequately familiar with lending regulations and practices in order to avoid unnecessary problems.

? Check the prospective lending institution's references. Make sure you go beyond just checking the lender's client base. Many asset-based lenders get the majority of their clients through referrals from bankers, accountants, attorneys and turnaround consultants.

Talk with some of these professionals about the asset-based lenders you're investigating and see what they have to say. Even if they have no direct experience with a particular lender, chances are they'll know how that lender is perceived within the industry.

Once you've fully investigated your prospective lending institution, you're in pretty good shape.

While you've been checking out the lender, the lender has been assessing your needs and in all probability has provided an initial proposal. Assuming the lender checks out to your satisfaction, and you're comfortable with its management and personnel, you can now direct your efforts to evaluating other issues that are also critical in the selection process.

It's unfortunate, but when evaluating a proposal, many people focus on the quoted interest rate as the primary issue in choosing an asset-based lender. In fact, many other issues are equally if not more important.

One of the key things to keep in mind is that asset-based lenders are selling a commodity money and everybody else in town has the same commodity. So it becomes a question of what the lender does to add some value, to turn a transaction into a relationship.

While certainly the cost of the money is important, the lender's willingness to provide sufficient funds and people to help utilize the money properly is actually more important.

After all, if the company doesn't get the right amount of money and help with how to use it, it will not matter what the money was going to cost.

With that in mind, the following are some additional issues to consider when evaluating asset-based lenders.

? How flexible is the lender? Will they structure the loan to meet the company's needs? Some lenders are more creative than others and will look for ways to say yes when others will not.

? How long is their response time? How quickly can the lender provide initial funding?

What some lenders say they do and what they actually do can be two different things. See what the lender has done historically by asking clients, and by specifically asking the lender to tell you the average turnaround time for all clients, from contact to funding.

? What is the borrower's access to decision-makers? It's not uncommon, from time to time, to make additional requests, such as in the event you require an over-advance. Will fast answers be available when needed?

? What will be the nature of your relationship? Will individualized attention be provided by people with a reputation for honesty and integrity and who work to help their clients re-qualify for traditional bank financing?

? Is the lender more than just a lender? Does the firm offer a value-added benefit of providing insight to help the borrower improve the financial processes of a business?

And are there strategic relationships with leading industry professionals in areas such as marketing, sales planning, corporate structuring, employee benefits and information technology so assistance can be arranged if needed or requested?

There are many important issues to consider when choosing an asset-based lender. When you take a look at all of the issues and compare one lender to another, choosing the right one will be much easier than you think.

Bron D. Hafner is chief executive of Celtic Capital Corp. He can be reached at

Entrepreneur's Notebook is a regular column contributed by EC2, The Annenberg Incubator Project, a center for multimedia and electronic communications at the University of Southern California. Contact James Klein at (213) 743-1759 with feedback and topic suggestions.

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