Everything You Need to Know About Asset-Based Lending
Does your business need a flexible, fast-paced method of increasing your working capital? Asset-based lending is a dynamic way to promote business growth. Learn more about this financial option and see how it compares to more traditional forms of funding.
There are many funding opportunities available to most businesses, so it can be difficult to determine the best financial package for your company. For small businesses, however, there remain very few options that allow a substantial amount of lending for investing or covering operating costs.
An asset-based loan has a number of benefits compared to bank loans and lines of credit. First, this loan option doesn’t require you or your business to have a high credit score. It’s also available to younger companies and companies who may not have the length of financial history typically required for a commercial loan.
Your lender will require an asset to secure your loan. This allows you to access funding that you may otherwise be deemed too risky to receive, but it also adds some risk of loss of property. There are a wide variety of assets that can be used. Choose a piece of property, heavy equipment, valuable inventory or accounts receivable to secure your loan.
A popular option is accounts receivable. If you have invoices from companies who are reputable and have a high credit score, your lender may offer you between 70% and 90% of the total for an immediate loan. This amount is disbursed quickly, and your lender will simply receive the total invoice as payment.
This allows you to receive fast funding for a number of reasons. If you have an emergency expense and need flexible financing today, or if you haven’t been approved for a bank loan, asset-based lending is an option that allows you to keep your business thriving.
However, asset-based loans still come with a few considerations. First, you typically pay more in interest than you would for a long-term commercial loan or mortgage. Asset-based loans are designed to be short-term solutions for emergency expenses or necessary renovations to secure a particular investment opportunity.
Carefully consider your financial options before choosing an asset-based loan. For businesses that are struggling to receive payment or need a backup financing option with quick turnaround time, asset-based lending remains an essential tool. From real estate to invoices, leverage your assets and build your business through positive cash flow and a strong working capital balance.