Is Asset Based Lending Right for Your Business?
When you access asset based lending for your business, you use your future revenue to obtain funds you can use now. Lenders provide you a monetary amount equal to a percentage of your assets’ value. This type of loan is helpful when your business is experiencing rapid growth or needs cash to get through a financial setback.
Which Industries Use Asset-Based Loans?
These loans typically work well for capital-intensive businesses. Companies with accounts receivables, fixed assets or inventory can consider this borrowing method. Some examples include:
- Distributors
- Service companies
- Manufacturers
- Businesses with seasonal fluctuations
- Retail operations
- Staffing organizations
What Assets Can You Use To Back Your Loan?
Most lenders structure the funds on accounts receivable. However, they may provide capital advances based on your product inventory, real estate or other fixed assets.
How Do You Qualify for Asset Based Lending?
Obtaining this kind of loan requires several elements and may be difficult for new companies. Some qualifications lenders look for include:
- Accurate reporting systems
- Detailed financial statements
- Commonly sold inventory
- Reliable clientele
Banks typically are not as concerned with your credit scores or profitability with this loan type. They focus instead on the value of your collateral.
How Do Asset-Based Loans Benefit Your Business?
Loans that use your accounts receivable and other assets to minimize the bank’s risk have many advantages for your company, such as:
- Maintaining daily operations: This lending helps keep your business operational during unstable financial situations. If your company experiences a lull in revenue due to seasonal or other factors, an asset-based loan offers you the ability to stay afloat until your income is stable.
- Simple qualifications: In general, it is easier to secure this lending type than traditional borrowing methods. If your business has valuable collateral assets, you should be able to obtain the funds you need.
- Quick funding: You do not need to provide stacks of paperwork to apply for this kind of funding. If your business meets the requirements, you can receive a cash infusion quickly.
- Flexible rules: Banks do not attach many stipulations on the use of your funds. The lack of restrictions gives you the ability to use the money for your immediate needs.
Asset based lending is an excellent option to ensure your business remains fully operational during periods of low income. It also helps you continue meeting the needs of rapid growth, making sure you don’t have to stall your progress due to a lack of working capital.
