When to Consider Asset based lending

Asset based business lending is considered as the last resort funding by small businesses as this type of financing is flexible, economical and helps to meet their cash flow needs quickly. Availing funds against assets is attractive to all type of borrowers as this is flexible and easy to avail when compared to traditional bank loans.

What is Asset-Based Business Lending?

The concept is simple and straightforward; the funding involves a business loan or a line of credit secured by collateral. The collateral needs to be owned by the business or the borrower for the conduct of business. The asset will be seized by the lender if the borrower defaults the loan amount.

The commercial loans are secured by bills receivable and are often stock owned by the business. Lenders consider liquid assets such as bills receivable the most as they can be encashed easily and moreover do not get damaged or face any other problems similar to that of tangible assets.

Bills receivable that are older than 90 days are not eligible as securities for asset-based lending. The accounts receivable that are from completed sales are only eligible to avail this type of loan. Inventory eligible for loan includes raw material that is marketable and finished goods. Obsolete inventory, work-in-progress stock, and slow moving inventory are not considered for a loan.

Asset based business lending loans can be availed against fixed assets, real estate, and equipment owned by the business or the owners of the business. Borrowers frequently used fixed assets to avail business loans as more funds can be availed in less time.

How is it different from Traditional loans against assets?

Asset-based lending is different from traditional loans against assets as the funding matches a company’s asset to the funding needs, unlike traditional loans that require entire collateral security. This type of funding gives a lender the benefit of liquid assets to secure their loan without disrupting the operating performance of the business making it an ideal option for small businesses. The interest rates are also generally low when compared to unsecured loans.

How Asset Based business Lending Works?

Small businesses frequently use asset based business lending to fund the business where the property of the company is used to acquire finance either to increase the cash flow or to expand the business. The revolving line of credit against asset-based lending can provide borrowers lots of flexibility. The loan against the asset can be designed to grow with the growth of the company resulting in increased line of credit.

Suitable situations to avail Asset based business lending

However, there are only certain appropriate situations where a business owner can consider asset-based lending which include; operating funds is helpful in receivables, growing sales resulting in resources exhaustion, peak and off season problems, stocking more inventory due to clients demands and no fixed asset to secure the loan. What if the company does not have any assets to secure the loan and require immediate funds to meet the operating costs? Fortunately, availing funds is possible without collateral with Merchant cash advance where lump sum cash advance can be availed against future sales of the company. The merchant cash advance becomes a viable option for businesses with no collaterals and borrowers with bad credit. The funding is quick, easy and effortless. These loans can be applied for online and can get approved in as less as 72 hours.

 

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