One of the best ways for a new business to get a loan from a lender is through an asset-based loan. These are typically easier to get, as long as your business has some sort of collateral. In this article, we’ll define asset-based lending, explore the advantages versus the disadvantages, and help you determine if this is the best solution for your business.
Asset-Based Lending Defined
Let’s start by defining asset-based lending. This type of lending has been around since lending became an industry. Basically, it is a cash advance based on the assets of a company.
Advantages
There are some benefits to asset-based lending as a way to get the working capital you need for your business.
Flexibility
Maximum proceeds
Frequent reporting to credit bureaus
Better management of cash
Disadvantages
On the other hand, just like many other options, there are a few disadvantages to asset-based lending.
Takes time
Increased monitoring of assets
Types of Assets Needed for Asset-Based Loans
In most cases, asset-based lenders structure loans with advances on accounts receivable- but it is possible to have an advance on inventory as well. Common assets to secure these loans include:
Accounts receivable
Inventory
Machinery/special equipment
Buildings/property
What Businesses Should Use Asset-Based Lending?
Most businesses can benefit from this type of loan. However, there are a few exceptions, such as those who use a recurring revenue model, carry no assets in their balance, or do mostly cash transactions.
Compared to other types of business loans, the lenders of asset-based loans don’t look too closely at your credit history, overall profitability, or cash flow. They are more concerned with the liquidity and value of the collateral you offer. Therefore, you typically need high-value collateral to qualify. If you believe that your business may benefit from pursuing asset-based lending, contact Bold Growth Solutions to guide you through the process.