Critical Asset Financing: Critical Asset Financing May Be an Option for Longer Term Financing

Find out if Critical Asset Financing is right for you, even if you are a borrower or lender. Learn more about the benefits of CAF and view GE Capital's whitepaper: Why Critical Asset Financing May Be a Viable Option in Volatile Markets.

Critical Asset Financing May Be an Option for Longer Term Financing

Critical asset financing (CAF) is one of the safer forms of financing. Critical assets, the main components of the financial plan, are vital aspects of their related industry, and retain their value even if the original company shuts down, and non-material components of a business, such as key patents and distribution rights, are also classified as critical assets.

Third parties are often interested in these critical assets, regardless of the original company's fate. Selling or leasing the assets, if the original company becomes insolvent or if the lender needs to gain funds, becomes a source of liquidity and a potential way for lenders to gain back lost funds.

An alternative to traditional loans, a CAF offers new options for borrowers and lenders. Typically, a CAF will be designed as a lease, on or off balance sheet or as a secured term loan.

Factors to Look for When Considering CAF

While deciding if CAF is the right choice for you and your business, it is important to look into various factors of the critical assets:

Current, but proven manufacturing production process and technology
Efficient, low-cost producers relative to competitors
Significant market share in growing or stable sectors

Benefits of Critical Assets

CAF can be beneficial for both borrowers and lenders. Many bank credit agreements allow sale/leasebacks by applying proceeds. In other words, borrowers can release an existing lien from a bank by selling the critical assets and giving the bank a percentage of the proceeds. Additionally, lenders can reduce exposure and offer another financing option for potential clients.

Is Critical Asset Financing Right for Me?

Borrowers with difficulty generating enough cash flow in order to comply with current credit agreements, or making payments on time should consider CAF. CAF can produce enough cash flow to pay down loans, payments or prevent defaults. CAF is also useful for high capital companies that don't struggle with cash flow or other cash flow issues but want to increase funds for expansion needs.

Although CAF can be more expensive than other loan options, providing additional equity is costly, and sometimes impossible to raise. And, the patience required from lenders and borrowers when engaging in CAF pays off long term.

Considering CAF Further

Whether you are a borrower or lender, find out if CAF is the right choice for you. Learn more about the benefits of CAF and view GE Capital's whitepaper: Why Critical Asset Financing May Be a Viable Option in Volatile Markets.