Like the name suggests, asset-based loans depend on a company’s assets such as inventory and accounts receivable, where they are used as collateral. Simply put, using future revenue to gain access to money in the present. The lender will advance the entrepreneur a certain percentage of the value of the secured assets. This can be 70-80% of eligible receivables and about 50% of the finished inventory.
How Can Business Owners Get It?
Many financial institutions are offering asset-based loans. If you are a small business owner, the vital thing is to research which lenders are ready to offer credit to young businesses. Ask around from other entrepreneurs and do some online research as well. Most asset-based lenders prefer making large loans, as the cost of monitoring asset-based loans is the same whether the loan is big or small.
However, if your company has an attractive financial statement, often sells inventory, has good reporting systems, and has a good record of customers who pay their bills on time, you might be able to secure an asset-based loan. When coming to the table to negotiate, ensure all your financial statements are in order as you want to make the lender confident when giving you a loan.
Advantages
Asset-based loans are an excellent source of capital for companies growing rapidly, undercapitalized, or highly leveraged. In some instances, all a company needs is that cash injection to get over the financial challenges that are stalling growth.
Disadvantages
The probability of getting an asset-based loan depends on the receivables’ quality. Most lenders will go through your customer info to identify customers that pay within a short time and have a good credit rating. Sales to small businesses or individuals may not be considered as eligible receivables.
Another disadvantage is that some lenders may require their customers to send payments to them directly. This means that another company gains access to your business’s cash flow, which can place you in an uncomfortable situation.
If your company is growing fast and has an excellent financial statement, asset-based loans can offer you the financial stability you need. Do you feel that this type of loan is what your company needs to keep it growing? Contact us today at Jasema Capital, where we can help you get out of that financial jam and keep operations ongoing.