Whether you’ve calculated the cost of your business’s inventory and realized that the number is much higher than you expected, or if you’ve looked at your company’s financial statements from last quarter and don’t like what you see, one thing is clear:
You need more money than you currently have to keep your business going.
For many businesses, asset-based lending is the perfect solution. But what is an asset-based loan, and is it a good fit for your company?
Read on to understand what you need to know.
What Is Asset-Based Lending?
An asset-backed loan/line of credit is a method of funding that allows companies a kind of “early access” to future revenue.
The amount of money you are advanced is usually based on a percentage of the overall value of your company’s assets (like your inventory, real estate holdings, equipment, and accounts receivable.) These assets also act as collateral against the loan.
Your loan is then repaid to the lender when your clients pay their invoices.
In most companies, asset-based lending is given to established companies that have a strong list of customers, solid financial statements and history, and those that need a larger line of credit. (Smaller asset-based credit lines are not impossible, but require a bit more work to get.)
Usually, asset-based lending is especially attractive to companies that have a slow invoicing/accounts receivable process. It’s also popular among companies that are growing at a rapid rate, or a faster rate than initially expected.
However, an asset-based loan can also be used to help out a company that could be in trouble after a few months of under-performing or plateauing sales.
The Pros and Cons of Asset-Based Lending
For many, one of the best things about asset-based lending is that companies are still allowed to have ownership over their assets over the life of the loan (provided, of course, that they make payments to the lender.)
This means nothing is physically removed from your warehouse, and that you can work as you normally would without having to wait for approval from a lender.
Additionally, these loans come with a shorter approval period than you might think, which means that you won’t have to wait long to get the funds. This is especially key if you’re gearing up for your busy season.
However, asset-based loans can be expensive to pay back, with an APR of anywhere between 7-17% (plus loan fees.) But if it means you can get money quickly and if you have a strong financial future, that may not be an issue.
Is Asset-Based Financing Right for Your Company?
If you’re willing to put up your company’s assets as collateral, and if you’re confident that business will continue to grow in the next few months, then asset-based lending may be a good fit for you.
The key is to find a lender who is willing to provide you with customized loan options, realistic and fair rates, and who sees the loan as an investment in your business.
At Dealstruck, those are exactly the types of lenders we help you to connect with.
Apply here to start the process today.