Business

Asset-Based Lending: Six Advantages

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Asset-Based Lending

In recent years, asset based lending has gained popularity. These loans offer many benefits as similar products such as a credit line. It is much easier to qualify for an asset-based loan. This article will focus on the six greatest benefits of the asset-based loan.

Liquidity has improved

Asset-based financing can bring the client company improved liquidity. If used properly, asset-based financing can give the client financial stability and predictable cash flow. Companies experiencing rapid growth, tight cash flows, or seasonal revenues can benefit from this benefit.

Loans and credit lines are easier to obtain than loans and credit cards

It is much easier to be approved for an asset-based financing program than a bank loan or a business line of credit. A business must have a track record of profitability and demonstrate financial control. The client must also have assets that can be leveraged.

The client receivables are the easiest asset to leverage. Because invoices from creditworthy clients can be easily turned into cash, they make excellent collateral. Most finance companies prefer invoices that are paid within seven days. The client company may also use equipment and inventory as collateral.

The client can also use other types of assets to secure asset-based loan financing:

  • Receivables
  • Product inventory
  • Machinery
  • Equipment for special purposes
  • Buildings
  • Real estate

Provides great flexibility

Many asset based lending options offers great flexibility. There are usually no restrictions on how money can be spent. It just has to be used for business purposes.

The value of the accounts receivables or other collateral determines the line. The client can approve the line quickly, and it can grow as the client’s sales increase. The underwriting process does not have to be repeated. Companies that are rapidly growing and require additional funding will appreciate this benefit.

Quickly obtained

A quick approval can be granted for an asset-based loan if the client company meets all the requirements. The application and underwriting process are quicker than applying for a conventional loan.

Underwriting can be completed within a few weeks, provided the client’s business is financially sound and profitable. Complex situations like turnarounds may take longer to underwrite.

There are fewer covenants

Conventional lines of credit have more covenants for asset-based loans than they do for conventional lines. It is much easier to manage the line and stay in compliance.

It can be used to help the client get started with other products

Companies that use asset-based loans are often in an intermediate growth stage. Although they have outgrown the factoring financing lines, they are still not eligible for traditional credit.

A line based on assets allows the client to improve the client’s credit record with a lender while the client grows the client’s business. After the client’s track record has been established, the client will be able to move to a lower-cost solution.

Alternatives have lower costs

Asset-based loans are typically cheaper than other options like factoring.

Conclusion

Business owners who cannot qualify for traditional loans may find asset-based financing a useful resource. It is vital to find out more. Learn how asset-backed lending can help the client company reach its full potential. Asset based lending has many benefits, as the client can see.

FadLy Handowo
My name is FadLy Handowo. I love experiencing new things and I am always looking for a new activity to try.

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