Your Introduction to Asset Based Lending
It doesn’t take most entrepreneurs long to figure out how important borrowing is in today’s business world. The cost of running a company is incredibly high, and the price only goes up as you try to expand. Securing outside financing is a necessity for most, and asset based lending provides many companies with the money they need, but without the runaround associated with a personal or more traditional loan.
What Are Your Assets?
This is the first question you should answer before deciding if this is a suitable form of lending. In most cases, the loan officer will be looking to collect your accounts receivable, though inventory can also provide a good source of collateral. If you have solid financial records that indicate a consistent consumer base, you can likely get financing and then have the lender reimbursed directly through your paying customers. This means you have to provide proof of payment history and credibility of your buyers. You’ll also need to be poised for immediate sales because the interest rates that come with asset based lending can be rather high.
Should you leverage your inventory, there will be less concern with regard to consumer creditworthiness. This option often works well for manufacturing companies who are looking to grow and need a little financial boost in order to create the extra product. As long as you sell the goods you’re making, you’ll have no trouble repaying the financier. If things go south, you stand to lose the inventory you borrowed against. With either option, receivables or merchandise, the loan amount will depend on the quality and quantity of your business. The more clients you serve, the more money you can expect to be lent.
When to Try Asset Based Lending
Like with all loans, these types are better suited for some companies than others. A small business without much history in the way of sales will likely have trouble getting approved. Conversely, businesses with a proven track record of paying bills on time can benefit greatly from a loan secured by receivables, especially when looking to expand or in the process of shaking up an existing operation. As long as business is steady, this can be the perfect lending model for your company.
The right loan can propel a business towards growth and increased profitability. Asset based lending provides many entrepreneurs with the capital they need, assuming they have the right type of collateral and are in a position to make good on the loan.