If your business is in growth mode and it could benefit from asset-based loans, then asset-based lending can help.
When a business needs cash, one of the first things owners think about is a business loan. However, there are quite a few lending options available to businesses, making it difficult to choose one. With asset-based lending, you can avoid higher interest rates and get a business loan that suits your needs.
Asset based lending is all about borrowing money based on your company’s current assets. An asset is anything of value that your business owns. Asset based lenders can use these assets as collateral, but they will not accept just anything.
Keep on reading to learn everything you need to know about asset-based loans!
What is Asset Based Lending?
Asset based lending is a type of business financing that revolves around borrowing money from an asset-based lender based on the business’s assets. These assets are used as collateral to secure the asset-based loan and provides security for the lender.
It is normal to see asset-based loans set up as revolving lines of credit. This allows a business to continue to borrow money whenever they need it in order to cover business expenses as they grow.
How Asset Based Loans Work
Businesses take out loans for a variety of reasons to help them keep up with demand. For example, a business may borrow money to cover payroll and payroll taxes during a time when they are in a slow period and their revenue is down.
If a business does not have enough cash in the bank to cover business expenses, they might want to look into an asset-based loan. This is common with businesses such as manufacturing, government contracting, temp agencies, and other service-oriented businesses, who have expensive upfront costs.
The terms and conditions of a typical loan will vary depending on what is being offered as collateral to secure the loan. In most cases, lenders prefer assets that can verified and converted to cash, such as inventory and accounts receivable.
Asset based lenders try to avoid providing loans when only physical assets are offered as security because it will take much longer to recoup their money if the loan defaults. If they do offer a loan based on physical assets, you can expect the loan amount to be lower than how much they are actually worth.
Like all business loans, the interest rates will vary since they are based on a business’s credit history, balance sheet, P&L statement, and how long they have been in business.
Asset Based Lending Benefits
Asset based lending has been a common type of loan for many years since it provides a number of benefits that are desirable to businesses. Whether you are a business looking to grow or a large and well established one that is facing a hurdle, an asset-based loan can help you.
Here are some of the main asset-based lending benefits:
ABL is Easy to Acquire
One of the best things about asset-based loans is that they are easier to obtain than other types of business loans such as a bank line of credit. If your business has a short track record, you can still get an asset-based loan providing that you have shown to be profitable. The most important thing you will need is highly liquid collateral to secure the loan.
Your accounts receivable will be one of the best things to offer as collateral, especially if you are a small business without much history. If a lender still is not willing to move forward with your ABL application, then you can also offer some physical assets to increase the likelihood that you are approved.
Flexibility With Asset Based Loans
Different asset-based lenders will come up with unique legal terms that explain what you can and cannot spend the money on. However, most asset-based loans can be used for anything providing that it is being used for business purposes.
Being able to spend the money on anything makes asset-based loans a lot more flexible compared to other loans, such as a business equipment loan. Asset based loans revolve around the value of your current collateral, and the funds can be used for different aspects of the business, as opposed to only equipment.
Asset Based Funding Can Be Used to Grow Your Business
When companies are struggling to grow, an asset-based loan can be used as a stepping-stone to success. With this type of loan, your business can build a relationship with the asset-based lender, providing you with better ABL options in the future.
As you build your company’s credit and its loan history, you can start seeking new loans for your business with more favorable terms. In many cases, you can kickstart your business to the point where you will not need to borrow money anymore.
Who Qualifies for Asset Based Lending
Asset based lending is offered to businesses that have stability and good assets that can be used as collateral. Most of the businesses that take out asset-based loans are mid-sized and large companies. Asset based loans typically start out at a minimum of $1,000,000 and go up from there.
If you are looking into an asset-based loan, you cannot offer assets that are currently pledged to another lender. So, if you own a manufacturing company and would like to offer equipment to secure the loan, you cannot have another loan that is already using the same equipment as collateral.
However, you can use those assets for another loan after you have repaid the ABL lender. If you have any IRS tax, or active legal issues, these could prevent your assets from being used as collateral because an asset-based lender may not be comfortable with using them as collateral to secure the ABL.
Consider Getting an Asset Based Loan Today
No matter what the size of your business is, you should consider asset-based lending if you are looking to improve your company’s cash flow. If you are wanting to grow your business, then asset-based loans are readily available for you to apply for.
Keep in mind, the main thing that will affect your chance of being approved for an asset-based loan is the type of assets you have which will secure the loan. You will have to speak with a lender to see what they would be interested in as it pertains to your assets. From there, you can negotiate the rates and terms until you come up with something that will work for you.
Apply for asset-based lending today to get your business on the right path to success.