Businesses often need extra funding to strengthen cash flow, take advantage of opportunities for growth, hire additional personnel, or assist them in difficult situations. Asset-based loans comprise one lending option for companies that need capital. Here is some information to help you decide if this form of funding is a good fit for your business.
The Basics of Asset-Based Loans
Asset-based loans differ from credit-based loans in that they are based on the value of a company’s assets rather than on its credit rating. When you apply for an asset-based loan, the lender assesses the total worth of your company’s assets and then offers you a percentage of their value. Unlike factoring, you do not sell your assets to the lender, but instead, receive a loan based on how much your assets are worth. Since the assets function as collateral, you can lose them if you get behind on payments. Before obtaining an asset-based loan, shop around and find the lender that offers the best percentage of asset value, fees, and interest rates.
Businesses That Benefit from Asset-Based Loans
Asset-based loans are most beneficial to companies that own numerous assets that are of high value such as medium to large-sized manufacturers, distributors, wholesalers, and retailers. Assets that can be used as collateral for loans include accounts receivables, real estate, equipment, inventory, and raw materials.
Advantages of Asset-Based Loans
An asset-based loan may be ideal for your company if you need funds more quickly than you can get them through a traditional loan application process. You can obtain this type of loan even if your company does not qualify for a traditional loan because of its poor credit rating. An asset-based loan can help out your business if utilities bills or bills from suppliers are due and you want to avoid late payments and keep your credit rating intact.
For more advice on asset-based loans, get in touch with Overhead Capital Ltd.