Asset-Based Loans Explained: Benefits for Your Business
In the current unstable economic situation, many companies struggle to maintain reliable cash flow and finance further growth. When businesses desire to expand but are unable to acquire unsecured loans from traditional banking institutions, one source that they often look to for assistance is asset-based loans. Companies of all sizes and types are able to qualify for asset-based loans. Here are some things to keep in mind when considering this option.
Collateral for Asset-Based Loans
When businesses requiring working capital obtain asset-based loans, they use the assets of their company for collateral. This may take the form of accounts receivable financing, which involves using outstanding invoices as collateral. Alternatively, you may use hard collateral such as real estate, machinery, or equipment to secure your loan.
The Process of Obtaining Asset-Based Loans
Lenders agree to issue asset-based loans only after they have conducted a process of due diligence to assess the state of a company’s finances, which may involve inspecting financial statements and researching the proposed collateral. The amount of the loan varies depending on the value of the collateral. Usually a lender offers 75 to 80 percent of the value of outstanding accounts receivables or 50 percent of the value of hard collateral. The loan’s cost depends on the overall amount of the loan, the value of the collateral, and the perceived risk to the lender.
The Benefits of Asset-Based Loans
If your company is dealing with a problem of erratic cash flow, an asset-based loan supplies an infusion of working capital to stabilize and strengthen your finances. Asset-based loans are easier to obtain than other forms of financing, and as long as you meet the lending criteria, you can usually secure them fairly quickly. Additionally, asset-based loans do not generally come with lender stipulations on how you must spend the money. You are free to use them however you decide will best strengthen your business.
For more advice on asset-based loans, get in touch with Trihawk Capital.