What is Asset-Based Lending?
When it comes to running a business, the most important thing to watch closely is that of cash flow. Cash flow is a term for the money that is coming in and out of your business. While most businesses get off to a great start, maintaining salaries, products, and services long-term can be extremely hard to do without a healthy cash flow.
Having a healthy cash flow is easier said than done. The reason for this is because unforeseen situations can arise such as missed payments by your clients, clients going out of business, pandemics, and more. Al;l of these situations can upend your cash flow and can quickly lead you to have to spend more money for a period of time than you are bringing in. In this sort of situation, what options does a business have in order to secure some capital so that they don’t have to go out of business? One solution is that of asset-based lending.
Instead of having to pull your credit report to get a traditional loan, asset-based lending is purely based on the assets that your business owns that can be used as collateral. There are many different assets that can be used such as equipment, inventory, real estate, and even outstanding invoices. When these assets are used as collateral, the lender will provide the estimated worth of the asset, as well as charge additional fees and interest. In the case of using outstanding invoices as collateral. Once the client pays the money, the loan will be paid off free and clear as long as the other fees and interest amounts have been paid off also.
This sort of financing is a fantastic choice for small businesses who may not have the best personal credit scores, but who have a solid business plan and offers. This type of financing is also fantastic because it doesn’t stop you from being able to use the real estate or equipment you put up as collateral in order to secure the financing – thus allowing you to continue business as usual so that you can continue to make sales and offer services.
If your business encounters unforeseen circumstances that disrupt your cash flow, instead of closing your doors for good, you can look into asset-based lending to determine what assets you may be able to use to secure some capital to get you through a temporary rough patch.