Asset-based lending is just what it sounds like – a lender would provide you with cash based on the value of one or more assets that you own. This is a fairly secure transaction for the lender because, in the event that you default on the loan, they could sell your asset to recover the amount of the loan, so they don’t lose money.
The amount of money that a lender is willing to lend you based on the value of your assets will depend on several factors, but one of the big biggest factors relates to how liquid your asset is. For instance, if your company asset is in the form of inventory, that would not be as liquid as a number of Accounts Receivable, which could instantly be converted into cash.
Advantages of Asset-Based Lending
Probably the biggest single advantage of an asset-based loan is that you’ll find most lenders will be much more flexible, and more likely to approve your loan application, simply because it’s backed by a salable asset. Many lenders will overlook poor credit history, low business performance, and even a weak bottom line, simply because you have strong assets that can be converted into cash.
Another advantage of asset-based lending is that you can usually get the maximum amount of any loan, compared to other types of loans that you might apply for. Since other loans are not backed by a salable asset, you can expect to receive less money from a lender, because they’re taking a greater risk, and are more exposed to losing money if you should default.
One of the indirect advantages of asset-based lending is that a lender will generally require you to provide at least monthly, if not weekly reports on cash flow and other business characteristics. This, in turn, will provide better insights for your own company on its financial reporting and on its practices related to cash management.
Does your small business need a business loan?
At Nations Capital Financing, we do our best to accommodate many small businesses, helping them with financial needs. If your business would benefit from a business loan, you should contact us so we can explore some options.