Assess Your Needs for Financing and Liquidity in an Uncertain Economic Environment

April 2, 2021 | Authored by Dopkins & Company, LLP

April 2, 2021 – In an article published in Business First of Buffalo, we discuss strategies for raising capital for businesses in need of financing.

Assess Your Needs for Financing and Liquidity in an Uncertain Economic Environment

Thinking about the availability or ease with which your organization can borrow money and access multiple credit options? Notwithstanding a tight lending environment, many middle market executives feel it is easier to obtain credit, they have access to additional financing choices, and they expect to borrow more, according to the proprietary RSM US Middle Market Business Index.

Despite the challenges posed by the most intense phase of the public health crisis, sentiment among middle market business executives rose in January 2021, according to the Index. The optimism around expectations about the economy, earnings and growing revenues is the primary impetus behind the improvement in overall middle market business sentiment.

Meanwhile, the Federal Reserve’s January 2021 Senior Loan Office Opinion Survey shows that banks imposed more stringent lending standards during this time period and tightened their standards on commercial and industrial (C&I) loans to businesses of all sizes. An overwhelming majority of banks reported worsening industry problems or a doubtful economic outlook as key reasons for tightening credit standards.

According to the RSM survey, 40% of the executives said they planned to increase borrowing over the next six months. In the midst of a global pandemic, tightening credit standards and an uncertain economic environment, many middle market business owners and executives are seeking advice from their trusted advisors to evaluate the business needs for liquidity and the various financing solutions to utilize moving forward.

Is Asset-Based Lending Right for You?

Throughout 2020 and into 2021, our Firm is assisting more and more companies in converting their revolving working capital credit facilities from secured cash-flow-based to asset-based lending (ABL) lines of credit. Companies are seeking our advice because of poor financial performance resulting from the pandemic crisis or the uncertainty in the economy has strained their existing banking relationship. In addition, we are assisting companies that pivoted to a new business model and are experiencing significant growth during the crisis. As a result, business owners and management feel their organization has outgrown their current lending relationship and pursue a path to convert from a secured cash-flow-based facility to an asset-based lending line of credit.

Once considered financing of last resort for companies experiencing difficulty, asset-based lending and factoring have become popular choices for companies that do not have the credit rating or track record to qualify for more traditional types of financing or they increase their leverage to seek out acquisitions. That stigma is ancient history as ABL has become much more conventional, primarily because loan structures are flexible in today’s environment, requiring little to no covenants.

Asset-based lending finances both seasonal and permanent working capital in the form of revolving credit lines, collateralized by accounts receivable and inventory, and are subject to a periodic borrowing base. Currently, we see companies that are asset rich, primarily with accounts receivable and inventory, embracing asset-based lending credit to address two primary concerns (1) Is there a fear of the company violating loan covenants due to uncertain financial performance while operating in a crisis, and (2) does the company desire greater liquidity by leveraging the collateral values of accounts receivable and inventory?

For companies looking for liquidity to weather the crisis, or firms positioned to invest or expand, conversion to asset-based credit facilities are often the optimal way to meet financing needs. Companies become comfortable with the financial reporting requirements of asset-based lending and the monitoring of the collateral. This discipline results in many companies staying with asset-based lending as a long-term solution with maximum liquidity. 

Choosing the Right Advisor

Despite working in a pandemic, advisors are finding the right lending partner to raise capital for a business in need of financing. When choosing an advisor to assist you with your financing needs, look for advisors who have the experience of working with many different bank and non-bank lenders, and who can identify lenders who are experienced with the industry, the type of collateral, and the performance of your company.

Business owners can expect that 2021 will reveal to traditional banks which of their borrowers were truly helped by PPP dollars and which the stimulus merely provided a Band- Aid for unrecoverable declines. Organizations can be proactive by working with an advisor in identifying weaknesses in the financial and operating performance of companies as well as identifying the strengths of a business and the performance of the loan collateral. Advisors will be your advocate in identifying, highlighting and demonstrating these strengths of the business and the collateral to the new, potential commercial lenders.

About the Author

Dopkins & Company, LLP

Dopkins & Company, LLP, a locally owned certified public accounting and consulting firm offers comprehensive accounting, auditing and tax services, forensic accounting, as well as IT, wealth management consulting, internal audit support, and collateral examinations to privately held and public companies, not-for-profit organizations, and individuals. For more information, contact

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