Can Asset-Based Lending Help Support Your Business?
Revenue and capital are the lifeblood of your business. With sufficient business capital, your company can purchase needed equipment, take advantage of better pricing tiers when buying inventory or hire additional workers to boost productivity. Where can you get financing for these business necessities? One popular option is asset-based lending, or ABL.
What Is Asset-Based Lending?
Put simply, asset-based financing uses some kind of equity as collateral for a loan. Sometimes this asset is physical, such as an expensive piece of equipment. Assets can also be financial or commercial in nature, such as the value of shares in a corporation. Here are other assets commonly used in this form of financing:
- Accounts receivables
- Machinery
- Automobiles
- Inventory
- Real estate
When using accounts receivables, or unpaid invoices, to secure an ABL loan, your company essentially “sells” the invoice to the lender, receiving cash immediately in exchange for a portion of the potential profits. Interest rates and fees vary, but generally speaking, your company will receive 80 percent of the invoice’s value up front, and the remaining 20 percent, minus fees, when the invoice is paid by your customer.
What Are the Benefits of ABL?
There are a number of advantages to asset-based loans compared to traditional bank loans:
- Credit rating requirements:Lenders are less interested in your business credit rating and more focused on the value of the asset used as collateral. This makes ABL a legitimate and helpful way for companies with less-than-perfect credit to obtain funds.
- Approval speed: Thanks to relaxed application requirements, ABL processing is much faster than waiting for traditional bank loan approval. Instead of several weeks or more, you can have access to funds in a day or two.
- Flexibility:Unlike more formal financing options, asset-based lending isn’t usually subject to scrutiny by the lender. In other words, you’re free to use capital as you see fit, without worrying about losing funding because of taking a few risks to seize on good business opportunities.
What Do Companies Need To Quality for Asset-Based Financing?
Here are a few things that lenders look for when evaluating asset-based loans:
- Cash flow
- Time in business
- Value of saleable assets
- Company financial statements
Business stability and profitability are beneficial factors in securing ABL financing, but a negative credit history isn’t likely to prevent application approval. With valuable assets or accounts receivables used as equity, many financial institutions are happy to extend urgent capital to businesses.
If asset-based lending is the right fit for your company, it can be an excellent tool for accelerating growth and staying up-to-date with modern technology, giving you an edge over your competitors.
