For smaller companies in the petroleum industry, maintaining the working capital to compete with larger corporations can be difficult. Temporary cash flow difficulties can potentially cripple operations and reduce the production of these firms, causing disruptions in the supply chain and delaying deliveries on contractual obligations. Finding a reliable solution for these cash shortages can help smaller oil companies remain financially viable in the competitive energy marketplace. For some firms, traditional bank lines of credit can provide relief from cash flow difficulties; other companies, however, may require a different financial approach.
Accounts receivable (A/R) lending arrangements can provide help for oil and gas companies that have already expended available sources of bank credit, that have experienced credit difficulties in the past or that have not yet established sufficient credit in the traditional lending marketplace. Loans on A/R use outstanding invoices as collateral to secure the amount borrowed. This alternative method of collateralizing these credit arrangements can often allow smaller oil companies to acquire the funds necessary to maintain or expand operations and to meet all their obligations to suppliers and customers on time and in a cost-effective way.
In most cases, A/R lenders require only a few pages of information and some basic financial data to begin the loan evaluation process. These lending arrangements use different criteria than traditional loans. The value of the invoices to be used as collateral and the creditworthiness of the companies who owe on those invoices are generally given more weight in the evaluation process than the credit history or financial situation of the borrower company. This can allow companies with checkered financial pasts to obtain loans on their invoices even in cases where traditional credit avenues are closed to them.
Unlike traditional lenders, asset-based lending companies can provide much faster decisions on invoice loans. Rather than the weeks or months necessary for standard loan approvals, lines of credit and loans on A/R can often be approved within one or two business days. Disbursements are equally fast and usually take less than a week, allowing gas and oil companies to access their funds almost immediately upon approval of their lending arrangements.
The right A/R lending partner can provide a balanced portfolio of lending options for smaller oil and gas firms. Companies like Commerce Commercial Credit offer outstanding rates and exceptional convenience for their clients, allowing smaller energy companies to compete more effectively with the giants in the petroleum industry.