Asset Based Lending

Asset-based lending is simply the process by which funds are loaned using an existing asset (or assets) as collateral. While this type of lending option may not be totally familiar to you, you shouldn’t rule it out just yet. 

Here we’ll discuss everything there is to know about asset-based lenders and the loans they provide - from the basics, to why you may want to consider an asset-based loan, to how it works, to what benefits this funding type can offer. Keep reading to learn more. 

What Is Asset-Based Lending?

Asset-based lending is exactly what it sounds like. It’s the lending of money using a borrower’s current assets as collateral to secure a loan. It’s a loan type that has become increasingly popular in recent years, in part because it can be easier to secure than some other more traditional loans. 

Asset-based loans can be attractive to smaller or mid-sized companies who are looking for ways to solve short-term cash flow problems. Generally, liquid collateral, versus physical assets, are preferred, but there is a range of options out there that borrowers might be able to use to secure an asset-based loan. 

Why Use Asset-Based Lending?

There are multiple reasons why businesses may be drawn to asset based lending. First and foremost, the application and approval process is generally fairly quick. Additionally, the process is typically substantially easier to go through than a traditional line of credit or unsecured loan is. 

Asset-based loans also tend to have a lower interest rate, meaning you save money over the life of the loan. This in and of itself can make them particularly attractive. 

How Does an Asset-Based Loan Work?

Just like a traditional loan or line of credit, asset-based loans result in a business getting the working capital they need to use for a variety of things. The business’s assets offer the lender security, as they can be seized should the borrower default on loan payments.

Borrowers can put up inventory or accounts receivable to guarantee a loan. This is peace of mind for the lender and can be a weight lifted off the borrower, who may need access to funds quickly. Essentially, you’re earning access to cash now by being willing to trade future revenue. 

Benefits of Asset-Based Loans

As we’ve noted, there are a number of benefits to an asset based loan. Some of the major ones follow. 

Flexibility

Whereas traditional loans might be a bit stringent, with a one-time payout, asset based lending is more flexible. Most often, you can use the funds for literally anything business-related. Also, it’s usually pretty easy to increase your loan value, as long as your revenue is steadily increasing as well. So, you borrow money to grow your business, and as it grows, you can usually gain access to more cash as needed to continue your growth.  

Fast Approval

If you need access to cash fast, as long as you have a profitable business model, as previously noted, asset-based lending has a quick approval process. If you qualify, both the application and the underwriting processes are almost always more seamless and speedy in comparison to traditional lending. It’s not uncommon to get through the entire underwriting process in just around two to three weeks.  

Improved Liquidity

Asset-based financing can result in improved liquidity. This can mean a predictable and stable cash flow to immediately help operations (even if you’ve experienced past cash flow problems or are trying to successfully navigate very rapid growth).

Lower Costs

The last thing you want to do when you’re borrowing money is have it cost you a ton. Asset-based lending generally costs much less than other lending alternatives. The end result? More money now, at less of a cost to you throughout the life of the loan, which results in a better bottom line at the end of the day.

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