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Managing Collateral Volatility in Uncertain Times

Ozella Bowman, 3 years ago
8 min read

We know that portfolio diversification is an important tactic in hedging risk – even when you have a market specialty. There are a number of variables which impact Borrowing Base Availability and whether a department or agency will fund asset-based lending deals; even more so during a pandemic such as the one we’re experiencing now. We took a look at how some different business types, with inherently different collateral measures, react under economic pressure:

  1. Cyclical vs. seasonal – The cyclical business types are seeing immediate impacts but also having immediate opportunities to iterate on their crisis management and make adjustments in response to the economic stresses at hand. Whereas Seasonal business types (depending on their season) are seeing either a major crush, having been hit with no opportunity to prepare and rebound, or have ample time to adjust orders or renegotiate deals as they brace for their turn.
  2. Goods and Services – The risk here really centers around the amount of human contact required to deliver the service or product. On the e-commerce side transactions are able to continue. However many retail items require shipping, where global logistics in many sectors are experiencing delays or shortages. These logistical issues have trickle-down ramifications on B2B and B2C operations.
  3. B2B vs. B2C – B2B borrowers are less impacted than retailers because they are not facing the same mass shut-downs during a pandemic. Consumer-facing businesses are less likely to have had remote work operations in place than B2B companies, therefore slowing the B2C ability to adapt and bounce back as quickly and confidently…and without a much higher investment.  


What are you seeing with borrowers?

A pandemic heightens the risk of wasted inventories for consumer facing businesses, total loss or reduced eligibility of accounts receivable for B2Bs, and unanticipated loss of present and future collateral values across the board.

Collateral type and accessibility are at the core of an organization’s ability to get ABL funds, and thus their ability to succeed during and beyond this time of economic constraint. Therefore lenders must be flexible in their deal structures to withstand future ebb and flows. This flexibility requires a workflow management system that provides more options and controls for calculating  ineligibles and availability. 


How is your company adjusting its risk management protocols to safeguard against borrower default?

ABLSoft offers a robust platform with multiple digital Borrowing Base automation tools which significantly reduce the time cost of managing Borrowing Bases, while also providing accuracy and convenience in processing BBCs for all borrower types. With more businesses requiring funding, lenders need software that can process higher volumes efficiently and accurately, enabling them to manage deals during periods of economic distress.