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Thursday, 03 August 2017 12:20

Asset Based Lending—Is It Right For You?

Asset Based lending Is It Right For You

If you’re considering getting a loan for your small business, you may have entertained the notion of asset based lending or loans. These loans are determined by your business assets, so your inventory and receivables will be analyzed to determine the amount of the loan and will be used as collateral. Essentially, asset based lending jeopardizes the revenue you will make in the future in order to get money for your company right now.


How Much Will You Get?


Lenders for asset based lending will advance the funds to you based on a predetermined percentage of the value of your secured assets. Generally, you’ll receive 50% of the value of your finished inventory and between 70 and 80% of your eligible receivables if you’re approved for a loan.


How to Get An Asset Based Loan


There is a wide range of services you can take advantage of when it comes to asset based lending. You’ll be getting a loan through an organization that is part of the Commercial Finance Association, so you can select a bank of independent finance company as a potential lender.


It’s best to search for lenders that offer lines of credit to start-up companies or small businesses that are only a few years old. This can be a challenge, and you may have to ask around, but asset-based lenders prefer to loan larger sums of money. This is because the cost to monitor a loan that is based on assets is about the same, regardless of the loan size.


If your company has pretty solid financial statements and organized reporting systems, it may be fairly easy to get an asset based loan. Your chances are also higher if you have inventory that sells often and you have a proven track record of paying your bills on time. It’s important to make sure that your financial details are accurate so that the lender is comfortable lending and monitoring the loan for a long period of time. This shows that you are running your business in an organized and credible fashion.


Pros and Cons


Asset based loans are a source of capital for businesses that are growing quickly. The loans are also best for companies that are in the middle of a turnaround or don’t have enough capital. Your small business may be in a situation that requires a cash infusion to overcome a financial hurdle or to keep your company growing steadily.


If you’re in the distribution or manufacturing business, asset based lending could be a viable financial solution if your balance sheet is leveraged well. This loan may also work well if the inventory cycles or seasonal needs in your industry have a significant impact on your cash flow.

On the other hand, keep in mind that the likelihood of securing an asset based loan is based on the quality of your receivables. A commercial lender will look through your customers or clients to identify the ones that pay on time and have acceptable credit. These lenders may not classify sales to other small businesses or individuals as receivables that are eligible for an asset based loan. Asset loans are also more expensive than conventional loans, and interest rates can vary significantly.


In addition to asset based lending, it may be feasible to check out the merchant cash advance option for your small business. This loan is fairly easy to acquire, and your chances of approval are high. You can get approved in as little as one business day, and the loan is paid back through your credit card sales. This saves you the hassle of having to come up with a repayment plan and prevents you from going into further debt. Be sure to talk to your financial advisor about the advantages of a merchant cash advance for your company.

Published inPBC Blog
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We provide two highly accessible financing programs that can get your business the working capital it needs in days instead of months.

For a small business, obtaining a traditional loan today is a complex and difficult process. That’s where Premier Business Capital comes in. 

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