Why an Asset-Based Loan Might Benefit Your Small Business

Small businesses are like little siblings who must always prove themselves to those who hold all the cards. Finding sources of funding, for example, can be challenging; banks are less likely approve loans for small businesses than for large companies, especially those small businesses without an extensive track record. Asset-based lending can be a game-changer, as this form of alternative financing is more readily attainable. However, this funding source may not be appropriate for every business. Consider your company’s profile, its particular needs and its asset bank when determining whether that particular financing fits. 

An asset-based loan is as the name implies. Your company receives financing based on the assets it holds: Inventory, accounts receivables and equipment are primary examples, though occasionally real estate may enter the picture. As an entrepreneur, you will encounter moments when you need quick cash to address growth opportunities or meet current operating expenses. When you do not otherwise have appropriate working capital, your assets provide the foundation for keeping your business moving forward. 

How much your receive depends on what you front as collateral. Invoices generally gain the highest loan-to-value return, up to 80%. Lenders look at the worth of physical stock, consider depreciation, and offer up to 50% of the value.

If you break it down further, you may note several reasons to seek asset-based lending: 

  • Investing in future operations
  • Purchasing additional equipment
  • Expanding the business
  • Making payroll

In fact, asset-focused financing provides more flexibility in how you use the funds compared to traditional loans.

A comparison points out other benefits beyond flexibility. First, you will jump through fewer hoops to attain this alternative financing than you would when applying for a bank loan; as a consequence, not only are you more likely to be approved by an asset-based business, but you will see the money relatively quickly. Second, you can work with an asset company to tailor repayments that fit your fluctuating profits. Finally, you might not take the entire total approved but will pay back only what you use—much like an equity loan. 

To take advantage of asset-loan benefits, your company does have to be established enough that you can prove your financial viability. You must have enough assets to secure funding, and they must belong to the company free and clear.

If so, you may find asset-based lending to be the golden goose your fluid business should capture. Even when you struggle to secure traditional financing, by presenting your assets to an alternate-lending company you likely will find the cash you need to thrive.

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