In the uncertainties of the modern marketplace, many companies of all sizes struggle financially. It becomes urgent for businesses to be able to access a form of funding that can help them obtain sufficient working capital to keep running and finance their expansion. Asset-based lending involves using company assets for collateral to secure loans. Here is some information so you can determine if asset based lending is right for your business.
Basics of Asset-Based Lending
More and more financial institutions are reluctant to approve unsecured loans. For this reason, companies turn to asset-based lending as a solution to their need for financing. Retailers, distributors, wholesalers, and service providers can all benefit from these loans, but lenders generally require companies to have worthwhile assets and stable finances before they are willing to give out any asset based lending. Accounts receivables are often used as collateral, but businesses also use machinery, equipment, inventory, and real estate.
How Asset-Based Lending Works
When a company applies for an asset-based loan, the lender’s process of due diligence includes research into the financial status of the business as well as the collateral it has to offer. If companies use accounts receivables as collateral, they can usually obtain a loan of up to 75 to 80 percent of their value. However, they can generally only get about 50 percent of the value of inventory used as collateral.
Benefits of Asset-Based Lending
Acquiring traditional unsecured loans involves a great deal of time and paperwork. On the other hand, you can obtain asset based lending much more quickly and easily. There are fewer requirements for these loans. Your business’s financial situation and your collateral’s value are the most important considerations. Unlike other types of loans that restrict how you can spend the money, you have the flexibility to use asset-based loans wherever they are needed. They provide you with a cushion to help your company maintain stability and even grow in difficult financial times.
For more advice on asset-based lending, get in touch with Aspen Commercial Lending.
If timing is everything, then an Asset-Based loan may be the right option for your company. For more information on Asset-Based loans, we recommend the book, “Asset-Based Lending” – a practical guide to secured financing.