Many small, medium and large companies are having a tough time getting immediate funding to satisfy unexpected cash constraint and operational needs. Cash flow and working capital continue to be the bread and butter of many organizations nationwide. The Banking industry continues to increase the list of requirements in order to approve a loan. Credit committees are looking for ways to limit the ability of Borrowers by taking over managerial functions and want to be part of the internal decision process instead of being the primary finance source.
While there are many options to raise capital for a business, most options have their own set of drawbacks. Businesses that need financing must contemplate all options in order to choose the one that is in line with their financial flow and objectives. We want to share with you how Asset Based Lending can provide a financial solution for your business.
What is Asset- Based Lending?
Asset Based Lending refers to issuance of a loan against a valuable business asset. In other words you can use any asset such as property, infrastructure, etc. as collateral and obtain immediate cash infusion to support your business. The amount of loan obtainable through this financing option depends on the value of the asset that you can present as collateral. This form of lending does not require external credit ratings. A business with an actual or equivalent S&P rating of BB+ and below, or a Moody’s rating of Ba1 and below qualifies for asset based lending.
Qualified Assets for Asset-Based Lending
- Long-term assets such as equipment and real estate
- Accounts receivable and inventory
Please note that some proportion of even the most liquid of asset classes are ineligible for asset based lending. Examples of such assets include substantially dated accounts receivable, work-in process inventories, and assets held for sale.
How Asset-Based Lending works Vs Bank Loan
Asset based lending has numerous differentiating factors that separate it from conventional bank loans. The rate of interest in asset based lending is much lower compared to traditional bank loans. Moreover, unlike bank loans that take up to a month to get approved and processed, asset based loans get approved in exceptionally minimal turnaround-times. These are two important factors that make asset based lending a much better option than the business loans offered by traditional banks.
Going the right path and taking next steps
If you are contemplating asset based lending, it is important to conduct a comprehensive research to find a credible business financing services provider offering this option. While there are various asset-based lending companies, the surplus in choices makes it even more difficult to select the right one. Make sure that the company you decide on has vast experience and credible reputation in the industry.
