In recent years, asset based lending has gradually been gaining popularity. Simply put, it involves seeking funding from a lending institution, with assets as leverage, should you fail to comply. Asset-based lending offers multiple advantages than you can expect from conventional credit lines.
Read on to discover some of these benefits;-
Boosts Liquidity
This is probably the most important benefit a company gains from using asset-based lending. When well-utilized, the financial institution can provide your business with stable and predictable cash flow. Notably, this helps stabilize operations for rapidly growing companies but have tight cash flows or seasonal revenues.
Easier to Get
It is easier to qualify for asset-based financing than a business loan or a line of credit. At the very least, the business needs to provide evidence of a short track of profitability and reasonable financial controls. Most importantly, you will need to provide assets of almost equal value to the amount you are requesting.
Usually, the easiest asset to leverage is receivable invoices from creditworthy clients. The majority of financial institutions prefer invoices to be paid within 70 days. Furthermore, you can use inventory or company equipment as collateral.
More Flexible
Most asset-based financing institutions offer great flexibility. For example, usually, there are very few limitations on how you can spend your money, as long as it is business-related.
Besides, given that funding is tied to the worth of your invoices or other leverage, you can quickly increase your credit line as your sales grow. Your business does not need to re-start the whole application process, a very crucial factor for companies seeking prompt funding.
Fewer Agreements
Asset-based loans have lesser covenants to sign compared to traditional credit lines. Consequently, managing and remaining compliant is far much more effortless.
Lower Costs
The purpose of any business is to make a profit. Consequently, business owners’ decisions are fueled by the desire to maximize returns. Notably, asset-based loans have lower costs regarding interest rates and additional charge fees than factoring alternatives. That helps minimize operation costs, hence boosts profits.
Quicker to Obtain
If you meet the criteria, the asset-based loan should land in your account within a few days. The application and underwriting process is quicker than applying for a conventional loan. Notably, the underwriting process may take a few weeks if your business is profitable and has reasonable financial controls. However, in more complex situations, underwriting may take a little longer.
Ideal Stepping Stone
Asset-based financing is ideal for small and medium businesses that do not qualify for conventional credit lines. It helps these businesses build a reputable track record as they work towards expanding. Once you have a strong and established track record, you can now seek less expensive credit lines.
Conclusion
As an intermediate business owner, finding funding can be quite a hassle. Luckily, asset-based financing offers you quick money against any assets you may have, including unpaid invoices. This loan is easier to obtain, process faster, and has lesser agreements to comply with. Most importantly, it helps build your track record so you can qualify for lesser expensive financing options.
