Almost all small businesses require outside financing to strengthen cash flow and spur further growth. The requirements for traditional bank loans are notoriously stringent, and many small businesses do not qualify for them. An alternative to meet your company’s financial needs is asset-based lending. Here is some important information about this method of funding.
The Basics of Asset-Based Lending
Asset-based loans are based on your company’s tangible assets. For this reason, the amount of your loan depends on the value of the assets that you use as collateral. For instance, you can generally obtain a loan of about 75 to 85 percent of the value of accounts receivables or 50 percent of the value of inventory or equipment.
The Benefits of Asset-Based Lending
Traditional bank loans are much more difficult to obtain than asset-based loans. Cash flow, revenue, and profitability are all important factors, while the main factor in asset-based lending is the value of the assets you set as collateral. Even if your current revenue is low if you have impressive future projections you can still qualify for an asset-based loan. These loans add value to unused inventory and unpaid accounts receivables. Additionally, with asset-based loans, your personal assets such as your home and care are safe.
Collateral Used in Asset-Based Lending
The collateral used in asset-based lending depends upon what type of business you own and what type of qualifying assets you have available. Unpaid accounts receivables are commonly used. Retailers and wholesalers can use their large amounts of inventory as collateral. Equipment such as commercial appliances, manufacturing machinery, computer systems, and company cars are also often used. Real estate can sometimes be used, depending on the lender that issues the loan.
Applying for an Asset-Based Loan
Before you apply for an asset-based loan, have your paperwork in order. Go over your financial statements and sales projections so you are prepared when you are asked about your company’s financial data. Prepare balance sheets, profit and loss statements, and business tax returns for the previous three years. You’ll also need to show your current bank statement and a detailed listing of your assets.
For more advice about asset-based lending, contact OneClick Commercial Funding.