How Retailers Can Emerge From Troubled Times With Asset-Based Lending

0aaJoseph Nemia TDBank

The evolving customer demand and shift in conventional shopping habits and preferences has fundamentally altered the retail landscape. Retailers are filing for bankruptcy at record high rates as the industry continues to combat this disruption. While physical stores currently account for roughly 90% of all retail sales, with 10% in e-Commerce, it is fully anticipated that those margins will continue to spread.

To stay relevant, brick-and-mortar stores need to create an immersive shopping experience for consumers that integrates the benefits of both in-store and online shopping. This developing trend has left some retailers behind, while others have pioneered the revolution.

Throughout the evolving retail landscape, asset-based lending has proven to be a beneficial financial solution, particularly for companies in distressed situations. By providing secured revolving lines of credit and term loans that offer a combination of flexibility, convenience and competitive pricing, asset-based lending helps companies emerge from troubled situations leaner, both from an infrastructure and financial perspective, and puts them in a position to be well-equipped to compete in the new-age retail world.


To effectively navigate through critical transitions, retailers should seek a strong, strategic partner that brings deep industry expertise and has the ability to provide extensive collateral experience.

Full Circle Financing

Asset-based lending is an attractive financing option for retailers as they work their way through the entire retail lifecycle. The flexible borrowing and repayment terms and less restrictive financial covenants position asset-based lending as an ideal financial partner as retailers navigate through growth, bankruptcy and restructuring.

When companies fall short of fast-changing customer demand, they may face financial pressure. Many engage asset-based lenders to secure Debtor-In-Possession “DIP” financing to support restructuring or liquidation. By selling unprofitable business lines, closing down unprofitable stores or paying down loans as opposed to long-term debt that must be financed through cash flow restructure, retailers emerge leaner, more nimble and ready to reengage in the retail environment.

On the upside of the cycle, asset-based lending helps these retailers free up resources for growth. As companies look to adapt and combine the omnichannel experience for a customer who goes into a brick-and-mortar store, the ability to use retail inventory as collateral for a revolving line of credit provides the working capital retailers need. These retailers can once again utilize asset-based lending to then build inventory and technological capabilities to provide that all-encompassing shopping experience consumers demand.

For Companies Of All Sizes

Not only is asset-based lending useful during any stage in the retail lifecycle, but it is adaptable for businesses of all sizes. Larger, more established retailers are finding themselves with heavy debt loads and low amounts of available cash, as shoppers continue to turn to alternative retail sources. These physical stores, with their heavy borrowing and now unmanageable repayment deadlines, are not able to fund the incorporation of e-Commerce that is needed to compete with popular online channels. Engaging with an asset-based lender early into the process will provide greater opportunity for the company to manage their bankruptcy effectively and re-emerge into the retail atmosphere.

For smaller retailers that have already mastered the new-age shopping experience, they need capital to maintain their accelerating growth. Improved efficiency leads to greater sales and a need for capital to restock their shelves. Unfortunately, these firms are unlikely to be approved for a normal loan due to their minimal credit history. Asset-based lenders help fill this gap, as they evaluate retailers’ current and future prospects, and not their past history, when making a funding decision.  

Capital Available

Although there were 11 bankruptcies in the U.S. retail space just four months into 2018, the global speculative default rate is expected to decline over the next two years, according to Moody’s. This forecast can be attributed to the supportive financing of asset-based lenders that affords retailers the opportunity of effectively working through the challenging retail cycles without being driven further into debt.

As the retail sector continues to evolve, asset-based lending presents a vital solution for working capital required to meet changing customer demands. In order to navigate and succeed in the retail space, brick-and-mortar retailers must continue to transform by providing an in-store extension of the brand’s overall experience, offering in-store conveniences such as pre-purchased pickups and integrating with smartphone technology for discounts or recommended products based on buying patterns.

Fortunately, for retailers in need of financing during any part of the business cycle, there is no shortage of capital from asset-based lenders, which have been active in the recent big-name retail bankruptcies including Toys ‘R’ Us, Vitamin World and Payless, among others. These struggling retailers predominantly utilized asset-based strategies to salvage their businesses and create a foundation to move forward. In successfully overcoming the downturn cycle through asset-based lending, these companies have reinforced the significance of asset-based lending’s place in the retail environment and validated the importance of a committed financial partner that understands their business and is reliable and trustworthy.


Joseph Nemia is the head of asset-based lending at TD Bank.

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