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Every business has a story. But sometimes financial statements tell only part of it.

Many healthy companies find themselves outside conventional lending guidelines for reasons that have little to do with their long-term potential. Strategic acquisitions, operational investments, seasonal fluctuations, or turnaround initiatives can temporarily change how a company looks on paper, even when the underlying business remains strong.

The challenge is that traditional bank loans are based largely on a company's historical financial performance. When a company's results fall outside established underwriting parameters, a loan request is often declined, regardless of contributing factors or circumstances.

Within asset-based lending (ABL), these businesses are often referred to as story credits. The term doesn't describe a troubled company. It describes a company whose financial statements require more context than historical performance alone can provide. Rather than focusing solely on what the numbers say today, asset-based lenders work to understand what's driving them. By evaluating the business, the quality of its assets, and management's strategy alongside the financial statements, they often uncover borrowing opportunities that traditional lenders overlook.

Conversations, Not Checklists

Understanding that context isn't accomplished through a checklist. It comes from conversations with leadership about how the business operates, recent strategic decisions, and its plan moving forward. That often starts with some important questions, including:

• What’s changed?
• Is the situation temporary or structural?
• Is management executing a credible strategy?
• What assets continue to support the business?

These are the exact questions that turn a declined application into a story credit worth pursuing. By digging deeper, asset-based lenders uncover business strengths and value that aren't immediately visible in an income statement or cash flow analysis — insight that helps them understand a company's true underlying value and potential.

Turning Assets into Opportunity

For a story credit, the opportunity isn't found in the income statement, it's found in the assets themselves.

While traditional lenders evaluate loan applicants largely through historical cash flow, asset-based lenders look at the borrowing capacity created by a company's assets, including accounts receivable, inventory, and, in some cases, equipment.

Asset-based loans are typically structured around a borrowing base — essentially a credit line that expands or contracts with the value of a company's receivables and inventory — applying agreed-upon advance rates to eligible assets. By focusing on the credit quality of the borrower's customers, asset-based lenders can often provide greater borrowing availability and, in many cases, higher advance rates on eligible receivables and inventory than traditional bank financing.

By understanding both the business strategy and the assets supporting it, lenders can structure financing that aligns with how the company operates today and where it's headed, not simply how it performed last quarter or last year. The result is financing that adapts to the realities of the business rather than expecting the business to conform to a rigid lending model.

Putting ABL into Action

Because asset-based lending relies more heavily on asset quality than historical cash flow, it can be especially valuable for story credits and companies experiencing rapid growth, seasonal fluctuations, or other significant working capital demands.

Consider one example from our portfolio: a staffing company experiencing rapid growth. New business was coming in, customers were expanding, and demand for employees was increasing.

On paper, however, the company's working capital requirements were becoming more challenging. Employees needed to be paid weekly while customers paid invoices 30 to 60 days later. Every new contract increased the need for cash well before payments were received.

Viewed strictly through its recent financial performance, the business appeared increasingly constrained. However, conversations with management revealed something different: a healthy business whose growth was simply outpacing its available working capital.

By understanding both the company's business model and the quality of its receivables, the lender structured financing that expanded alongside the business. Instead of limiting growth, access to working capital helped the company continue pursuing new opportunities and ultimately secure what became its largest customer.

Many companies eventually return to traditional bank financing. Asset-based lending is often not an alternative to conventional banking; it's a bridge that helps businesses continue growing until they once again fit conventional underwriting models.

More Than a Balance Sheet

Every story credit is unique. What they share is that the financial statements tell only part of the story.

Asset-based lending is designed to understand the business beyond the balance sheet. By considering the full context and circumstances affecting a company’s performance as well as its strategy, assets, and business potential, this flexible financing alternative can turn overlooked value into reliable working capital that helps companies move confidently into their next chapter of success.

Learn more

To learn more about Oxford Commercial Finance's flexible working capital solutions for small and mid-sized businesses, visit oxfordcommercialfinance.com.