Every business needs capital to operate and grow. Additional capital may be needed to fund revenue-generating marketing programs, cover a seasonal dip in revenue, bridge a difficult turnaround period, or fuel an expansion. In these situations, a desirable source of funds is asset-based loans. These are loans using assets such as accounts receivable and inventory as collateral.
Who Uses Asset-Based Loans and Who Qualifies?
Asset-based loans are used by companies of all sizes, from startups to business giants. They must be healthy and stable and have assets that can be financed. To be eligible for a loan, a company must not have any serious issues including accounting, legal, or tax problems that could encumber the assets. And, the assets cannot be pledged to another lender.
What Are the Borrowing Amounts Available?
Collateral for asset-based loans includes accounts receivable, inventory, and equipment. Generally, companies can borrow 70% to 80% of pledged accounts receivable value and around 50% of the value of inventory and equipment. Many financial services companies including banks and independent finance companies provide asset-based lending.
Advantages of Asset-Based Loans
First, the lender or bank will determine whether your asset or assets have an acceptable level of value to loan against. The advantages of asset-based loans are:
- Funding can typically be arranged quickly.
- Funding is usually easier to get compared to other types of loans.
- Reliable funding results, assuming that strong collateral value is offered.
- Funding is available regardless of credit rating.
- Loans allow more flexible use versus other loans.
- The recipient retains ownership of the collateral provided.
Disadvantages of Asset-Based Loans
Asset-based loans have the following disadvantages:
- These loans come with higher interest rates than other secured loans.
- If loans are not paid in time, the business risks losing the assets pledged.
Seek Expert Financial Assistance
To get the financing you need, contact TopFund Capital, based in Cleveland, OH. We offer a range of commercial finance products to help businesses succeed, with competitive rates, generous terms, and superior customer service.