Some people may not understand what asset based lending really is. Asset based lending is basically when someone uses some kind of property as collateral for a loan, and if the loan does not get paid that property, whatever it may be gets taken by the lender. A mortgage can be an example of an asset based loan. The interest rate on an asset based loan will be lower because regular loans do not have any assets for the lender to come collect if the borrower defaults. When there is collateral for the lender to come collect, it gives them more of a safety net allowing them to be able to lower the rate because they know if the loan defaults they will get the asset to cover the loan.
Asset based lending is usually required when funds are not accessible or not able to be raised by the company. This can happen when a company is expanding, when a company needs extra funds for inventory, or when a company is merging with another company. Sometimes a company will need an asset based loan because a company has cash flow problem due to rapid growth.
Some businesses may choose to put their future revenue up as an asset to secure a loan. In other words a company will put money their business has not even made yet up as collateral for a loan. This seems a bit risky, but it takes money to make money. Smaller businesses may have a harder time finding loans like this because it cost the lender the same amount whether it’s a big or small loan so they tend to stick to bigger ones.
Check out https://www.orionbusinesscapital.com/ to learn how smaller business owners can qualify and apply for these types of loans. If the company has good financial statements and customers that have a good reputation for paying their bills, it should not find it too difficult to get an asset based loan. A company can usually borrow 75 to 85 percent of the value of their accounts.
When a company is applying for an asset based loan it is important that they have accurate and detailed information. It is important to make the lender feel comfortable with the loan. Make sure the financial statements are professionally prepared and that they can prove that the business is being run and gun timing properly. Asset based loans can be just what a company needs to grow, because sometimes with the cash flow a company receives it just isn’t enough to expand and help to grow the business.