Asset Based Lending
Over the last decade, asset-based lending has experienced a major surge in popularity. This is largely due to the fact that asset-based loans offer many of the same benefits of traditional loans, but are easier to access. They are the perfect choice for businesses in need of working capital, as a way to continue operating without depleting cash flow or for fund expansion plans.
Understanding the Basics
Company assets (usually accounts receivable or inventory) are used as collateral to gain access to cash. While this can involve a certain amount of calculated risk, the advantages make it a worthwhile option for most businesses.
It is possible for asset-based loans to be used as a consistent source of credit. As long as a company has suitable assets to borrow against, it can use them to fund growth and investment for as long as needed.
The lender structures the funding, according to a mutually accepted percentage of the total value of the secured assets. So, in most cases, the percentage is around 85% of eligible receivables and around 50% of finished inventory.
The Perfect Candidates
Once again, this type of financing tends to be favored by businesses in need of working capital; particularly those that are asset rich but cash poor.
If a relatively small business experiences a period of rapid expansion, it can cause cash flow problems. Fortunately, asset-based lenders are great at helping businesses learn how to take back control of their rate of development and start budgeting more efficiently.
For the most part, asset-based loans are given to SME’s with tangible assets. While it is acceptable for these companies to have cash flow problems, most lenders are keen to restrict funding to fairly stable, low risk operations.
To be eligible for asset-based lending, a company must not already have used its assets to secure money from another lender. This situation is only viable if the first lender is willing to concede to the second. If there are serious legal, accounting, or tax avoidance issues, the application is likely to be rejected.
Approving Asset Based Lending
There is a due diligence process that needs to be carried out before a lender can offer a company funding. This involves determining the total value of proposed assets, making sure that there are no complicating circumstances linked to the collateral, and examining the accounting ledgers.
It is common for a lender to make a personal visit to the company while this process is ongoing. They may need to discuss the proposed collateral with onsite accountants and bookkeepers. In some cases, the lender will charge a fee for this visit, but the decision to do so is usually discretionary.
The overall cost is based on the size of the borrowed sum, the nature of the assets used, and the level of associated risk. The majority of funding is structured according to an annual percentage rate (APR) and the APR can be anywhere from 7-17%.
Reliable Lending with CFS
To fully assess your options,get in touch with the experts at Capital Funding Solutions. We provide reliability and sustainability for companies in Florida, Texas, New York, Georgia, Michigan, Virginia, and a host of other locations across the county.
Asset Based Lending in Florida, Texas, New York, Georgia, Michigan, Virginia…