Most businesses will need to get loans to meet their operating needs as well as to position themselves for growth. Asset-based lending, that is loans that are secured by assets instead of promises to pay, is a way to secure the necessary funding.
What Types of Assets Can be Used as Collateral?
Assets that can be used as collateral in asset-based lending can include a percentage of the value of the company’s accounts receivable, real estate, business equipment, and inventory.
What Are the Pros of Asset-based Lending?
The pros of asset-based lending include:
• It can be easier to qualify for this type of loan compared to seeking a conventional loan because the key requirement is to have valuable assets that can be secured against the loan.
• Assets are not sold, so there is no loss of control; they are simply borrowed against.
• This type of financing has few usage restrictions as long as the funds are used for business purposes.
• As the assets pledged as collateral grows in value, the resources for funding also grow.
The Cons of Asset-based Lending
The cons of asset-based lending include higher costs compared to traditional loans because the cost of assessing the collateral, underwriting the loan, and monitoring the assets requires more expensive effort. And the big one is that this type of lending has the risk of losing valuable assets if the loan is not paid because a lender can seize and sell the assets that were pledged to recover its money.
How to Get an Asset-based Loan
First, find a financial service lender that offers asset-based lending—there are many of them. Second, identify the assets that will be offered as collateral. Third, submit any requested documentation. Fourth, the lender will review your assets. Fifth, once the audit is completed, funding will be approved.
Seek Expert Financing Assistance
Contact Capital Finance Partners to secure the funding you need. We offer a comprehensive portfolio of loan products to operate and grow your business.