Asset-Based Lending Can Help Small Businesses

Asset-Based Lending can be very beneficial for you an your company. Suppose your company just received a large order but there’s not enough inventory to fill it. Additional inventory is necessary to fill the order and receive payments, but your working capital is tight right now.

Cash-flow challenges

This scenario is not unusual for small businesses, as they often encounter cash-flow challenges.  Small businesses generally invest their capital into growing the company, mergers, refinancing a current loan, or for a myriad of other reasons.  Then, when an unexpected expense arises (i.e., purchasing new inventory), they often find themselves financially strapped. If this scenario sounds familiar, asset-based financing is a viable option. Depending on the amount and value of your company’s assets, lenders may be willing to approve loans based solely on the assets.  This is also called a secured loan.

Asset-based financing

With asset-based financing, your company’s assets – real estate, accounts receivable, equipment, inventory, etc. — are considered collateral for the loan.  Interest rates vary based on the value of the assets.  Asset-based lending companies are especially interested in the value of your assets, state of residence, and term of the loan requested, since these are key factors in determining approval, the loan amount, and the interest rates.

There are advantages and disadvantages to asset-based financing.  The major advantage is that the application process is faster and easier than a loan or line of credit from traditional lenders.  For qualifying companies, the loan process can usually be completed in a few days – much less time than applying for a traditional loan.  Another advantage is that the lender imposes few restrictions on the loan so it can be used for any business-related expenditure.

The biggest disadvantage is the potential loss of assets.  If you cannot repay the loan you will default. When defaulting they may seize your assets in order to recover the amount of the loan.

As previously mentioned, there are many ways that asset-based financing can benefit your company.  However, it’s important to research all options to determine whether this is the best choice for your business.

National Advance Group

Sammy Ahdoot

1 Linden place Great Neck, NY 11021 Suite: 404