The Advantages of Asset Based Lending
There are seemingly infinite ways for companies, both established and startups, to try and secure funding. Which type of loan your business should apply for depends on a variety of factors, from the current state of your finances to the type of business you operate. For many companies, especially those trying to grow, asset based lending can provide the necessary cash without the inherent difficulties that come with applying for a bank loan.
Quick Access to Cash
One of the most common reasons a business will need to borrow is to cover working capital while trying to expand. If the money lent is going to cover the cost of immediate overhead, there isn’t much time to wait for the loan to process. Asset based lending, because it revolves around a company’s receivables and holdings, typically has a quicker turnaround and payout time frame. With the already secured assets acting as collateral, lenders can feel more at ease giving money without spending too much time developing the repayment terms. For this reason, the loan should be garnered for more or less immediate use.
Covering Cost of Growth
The problem for many young companies looking to grow is that they don’t have the capital to pay for expansion. It’s difficult to cover big business expenses when you’re not yet a big business. Fortunately, companies in this situation typically have receivables and good enough inventory movement to obtain an asset-based loan. Lenders are more likely to give money to a growing company with solid financial reporting as that company is presumably in a good position to pay the money back. In a roundabout way, this allows for the growth of the business to help cover the cost of the business’s growth.
Lower Interest Rates
Because the borrower has possessions and earnings tied into the loan, this type of lending often comes with a lower interest rate. The loan’s repayment period might be shorter than an average business loan, but you should plan to spend this money in the short term and pay it back quickly from the outset. While interest rates are dependent on a number of circumstances and can vary, asset based lending may provide a cash influx that doesn’t come with massive interest charges.
While not for everyone, loans connected to a companies assets can be the perfect way to keep growth from stalling or weather out a down period. With proper planning, asset based lending can quickly provide necessary cash without overburdening your growing business.