Untraditional lending often involves looking at an asset in an untraditional way.

If money is the fuel of corporate growth, there may be more gas in your company's tank than you realize. As asset-based lenders develop increasingly sophisticated valuation models, assets that once were deemed unsuitable for collateral are increasingly being used to secure loans.

Take, for example, unbilled receivables. Just because your company hasn't billed a customer for work performed doesn't mean that you can't borrow against those receivables. Granted, most lenders still shy away from making loans secured by unbilled A/R, but that's changing. Lenders are recognizing that well-documented unbilled receivables - such as those supported by time cards - can be collectible in the event of bankruptcy.

From a lender's standpoint, collecting on these receivables is more time-consuming because raw data must be compiled and packaged properly for the examiner or judge. Consequently, the credit advance will be at a lower rate - perhaps 70 to 75 percent instead of the 85 percent that invoiced services would command.

Even so, being able to borrow at 75 percent of your unbilled receivables is a lot better than not being able to borrow against them at all. (And wanting to protect this option for greater leverage gives you a good reason to demand detailed time cards, completed promptly and accurately, from your operating managers.)

Rental inventory is another area where lenders are rethinking the old rules. Traditionally, secured lenders prefer pledged inventory to be located in just one or two warehouses or in a series of public bonded warehouses. If the borrower goes into bankruptcy, the lender can account for, seize and liquidate the inventory relatively easily.

In contrast, inventory that is rented or leased to customers is scattered. Lenders don't like going hither and yon in the event of a liquidation, but they are coming to understand that certain factors can substantially reduce their risk.

For instance, a distributor of precision calibration equipment, used by industrial companies and medical firms, needed more working capital. His only significant unencumbered hard asset was his inventory of equipment, but virtually all of it was rented to a large number of customers.

Despite this dispersal of assets, a lender soon determined that the risk was quite manageable. Almost all of the equipment was out on 30-day rental agreements because the customers wanted to maintain the flexibility to trade-up to different equipment as their needs changed or the technology improved. Nearly all customers had a record of returning the equipment on time and undamaged, and many of them upgraded regularly.

Furthermore, each piece of equipment carried a serial number, so it was relatively easy for an appraiser to spot-check the inventory and determine that, yes, it was right where it was supposed to be. Consequently, the lender advanced credit on terms similar to those for centrally located inventory.

Companies in other industries are borrowing against rental inventory, including large trash containers and mobile storage units. These, too, have serial numbers, and although they are leased for relatively long periods of time - the mobile storage units are out on a semi-permanent basis - they are difficult to move. Again, an inventory appraiser makes a spot-check to determine their location and condition prior to a cash advance.

Sometimes collateral is in the possession of the borrower but is still widely dispersed. Consider the case of a company that does field maintenance for utilities and wanted to borrow against its fleet of pickup trucks. From a traditional lender's standpoint, the problem was that these trucks were not returned to company premises each night. Instead, because company employees didn't need to report to headquarters before making the day's round of four or five service calls, they drove them home each night just as if they were personal transportation.

Even so, the company was able to use the fleet as collateral to obtain additional working capital. For one thing, the company was well established and had a good credit rating, two factors that always comfort a lender. For another, an independent appraiser spot-checked the fleet to determine that the vehicles were in good condition. Finally, the lender obtained from the company the certificates of title to each of the trucks before making the loan.

Extra time and paperwork for both borrower and lender? Sure. But it enabled the company to grow its business.

Untraditional lending often involves looking at an asset in an untraditional way. When a national company that operates traffic-reporting helicopters in major cities needed additional capital after its founder cashed out, it initially ran into a stone wall. Yes, it could borrow $25 million - but only if the founder personally guaranteed it. Well, the reason the founder cashed out was to provide financial security for his family, and a personal guarantee would negate that.

The problem was that, under traditional lending yardsticks, the fleet of choppers would not support a $25 million loan, even with a generous over-advance. A different lender took a different view. First, this lender recognized that helicopters don't depreciate in the same way as most other durable assets. Ironically, because a helicopter is essentially trying to shake itself apart during flight, it requires constant and exhaustive maintenance that keeps it in like-new condition. As time passes, all parts subject to wear are replaced, so a well-maintained, years-old chopper is worth almost as much as a new one.

Second, the lender took into account the long-term contracts that the company has to provide helicopters and their pilots to radio and television stations (the pilots are also on-air traffic reporters). This cash stream, even without hypothecation, would justify the over-advance the company sought. The $25 million loan was made and fueled the company's further growth to the point that it is now ready to double its credit line to $50 million.

Like physical assets, intellectual property also can be effective collateral. Again, it often takes untraditional thinking to recognize value, but if it's there it can be hypothecated.

In one instance, a mid-size manufacturer of consumer garden products struck a deal with one of the big home-improvement retailers. If the home-improvement chain would buy, each year for the next five years, at least $40 million worth of garden products bearing one of the garden products company's brands - a well-known and highly regarded brand - the garden products company would transfer ownership of that brand to the home-improvement chain. The agreement also required the chain to purchase an additional $40 million of other branded products from the garden products company each year for the next five years to complete the transaction.

It was a good deal for both the chain and its vendor. But of course the garden products company would need substantial new working capital to support an additional $80 million in annual sales. And here was a potential deal-killing problem, for garden product sales are highly seasonal. In the spring and summer, backyard gardeners have a green thumb and open their checkbooks. In the fall and winter, they hibernate.

For a lender to view this loan in a traditional manner - i.e., on its liquidation value - would be self-defeating. The home-improvement chain wanted the brand names and was willing to sign a contract agreeing to purchase $400 million worth of products over five years to get them. The likelihood of liquidation was virtually nil. The deal was financed by an asset-based lender that focused not on the value of the hard assets but on the value of the contract and the intellectual property. An independent appraiser evaluated the contract - a definitive agreement that was excellently documented - and determined that it would support the required line of credit.

In another instance, a chain of toy stores sought a line of credit supported by the value of its receivables and inventory. As you can imagine, this company faced not only the problem of seasonality, but the relentless competition of Wal-Mart Stores, the nation's largest toy retailer. The toy store chain needed more money than would be warranted by only the value of its receivables and inventory.

But it was able to borrow this amount because its lender took into account the value of its name, house brands and goodwill in the event of liquidation. This intellectual property was worth enough, the lender determined after an independent appraisal, to justify an over-advance on the collateralized portion of the loan.

The lesson of these disparate case histories is clear. A company's borrowing power, based on its tangible and intangible assets, may be more - perhaps quite a bit more - than what might be indicated by traditional guidelines.  F+I

Nehama Jacobs is a senior vice president of PNC Business Credit. For more information, visit www.pncbusinesscredit.com.