The Trouble With Asset-Based Loans
Business Week (08/28/00) No. 3696 p.230; Timmons, Heather

Generally, a good economy fosters a trend of banks granting more loans and credit, specifically in the area of asset-based lending. Financial institutions are hurt by this move when the economy later weakens. Asset-based loans generally go to companies that have experienced certain problems with their finances, and they yield as much as 25 percent more than other types of loans. These loans are dependent on assets based on liquidation. The Commercial Finance Association found that in 1999, asset-based loans increased by 15 percent. Some lenders believe that others are being too careless about the loans they grant in their quest to succeed. Finova Group, Conseco, and Aegon have put their asset-loan businesses on the market this year, but none have sold. GE Capital and Bank of America have closed asset-based loan businesses as well. The Office of the Comptroller of the Currency has not expressed significant concern yet, but did release guidelines pertaining to asset-based loans earlier this year. Bank of America, First Union, and GE Capital were part of an asset-based loan to Crown Simplimatic, worth $115 million. The company later went bankrupt, leaving the financial firms with the task of writing off between $30 million and $50 million. Asset-based loans affect traditional companies more while the Old Economy's growth rate is decreasing more rapidly. Specifically, trucking, is one of the industries that has a large amount of asset-based lending and is facing declines. Citigroup recently acquired Copelo Capital, which has been focusing on trucking. According to Sal Maglietta of Citigroup, the firm has a long history of success in that sector.

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