Of the major asset-based lenders, “We’re all chasing the same deals,” said Wells Fargo’s Brady, who manages a portfolio of mostly $30 million and under ABL loans. “There’s not a lot of new demand coming online, and we’re all looking to lend to the better credits.”

That scenario has kept interest rates at historical lows, but cheap money is not the only result of the imbalance of supply and demand. Lenders are writing asset-based loans with four- and five-year maturities, rather than the traditional two, and fewer financial covenants. Borrowers are negotiating for more lenient reporting and reserve requirements. Hoping both to keep their most creditworthy borrowers happy and to try to cross-sell other products to them, banks are generally willing to be more flexible with those commercial borrowers. They are increasingly tolerant of junior lenders and borrowers’ desires to have them in deals.

“Like our competitors, we are willing to take incremental risks as to structure to try to close asset-based loans and maintain the relationship with the borrower,” Brady said. “If the characteristics suggest an advance rate of 85 percent on accounts receivable and 50 percent on inventory, we might bump our numbers a bit. In an environment like this, when you deem a loan or a borrower worth it, you stretch out and give the borrower more availability, while still keeping a good handle on exposure. The more comfortable we feel about the borrower and their prospects, especially when there’s more money chasing fewer deals, the more availability we’ll allow. Borrowers will ask us: ‘Can we report monthly instead of daily or weekly? Do you have to do three field exams a year? How about one or two? How about appraisals yearly instead of every six months?’ We’re getting pushed on these things and being forced to reevaluate the structures. We take them on a case-by-case basis and try, when possible, to protect borrowers’ time, effort and expense. All these borrowers downsized coming out of the down cycle and they don’t have fat, so they want to avoid—and we want to help them avoid, where possible— taking people away from their core mission.”

Adds his colleague Kuriger: “These days, in the loan document, as a banker you highlight the 20 things you really don’t like of the 50 things you don’t like, and then you negotiate and get rid of the 10 you absolutely can’t live with. It all comes down to your tolerance for pain, balanced against what your experience tells you will really hurt if [things go badly]. In this environment, you often end up saying, ‘I don’t love this, but in my experience, things like that haven’t generally cost us money, so we’ll live with it.’”

With low rates of return, generally unfavorable terms and partial ceding of control to borrowers, why do banks remain in the ABL game? “The importance of the loan itself is one thing,” said Kuriger, who handles primarily large, multilender debt. “The importance of the prospect of the cross-sell is something else entirely. If a prospective borrower is working on a major acquisition, the loan is only a portion of what the bank can offer. Cash management, depository accounts and investment banking services come into play, and there’s no shortage of internal constituencies eager to offer those services. The credit officers have to balance that, knowing that no amount of fees generated from ancillary services can make up for a bad loan. In the end, the bank looks at the overall picture and decides whether to extend credit and, if so, on what terms.”