“Money makes the world go round”: to any business owner accustomed to the nuances of their operations, it’s basic knowledge that this particular saying will always hold true.
Regardless of the industry you’re in, the size of your business, or what you sell, you will always need adequate financing because it’s a prerequisite for long-term growth. Whether it’s for investing in equipment and infrastructure or developing a marketing plan for much-needed customer acquisition, money is critical for nearly all business processes.
Business owners are always looking into the possibilities of seeking some much-needed financing to take things to the next level. However, obtaining funds or growing your existing capital is much harder than it sounds. After all, a healthy business incurs seemingly endless costs, making it difficult to retain profits for capital.
When it comes to seeking financial support, businesses today have the opportunity to seek help by enlisting the services of lenders. Thanks to the constant need for financing among all sectors of the American economy, lending institutions now offer dozens of different loan options for firms to use. One excellent example is asset-based financing.
What Are the Financing Options for Businesses?
In recent years, asset-based financing has been established as a critical loan option that businesses of all kinds can use. In fact, it is one of the most popular types of loans today.
Being around for decades, this type of business loan has been refined to the point where its previous history as a last-ditch option for bankrupt businesses is virtually forgotten. Thanks to constant revisions, updates, and quality checks to ensure that it is apt for modern businesses, asset-based financing now stands as a legitimate loan type.
Compared to many options on the market, this type of loan stands out because it gives businesses an inexpensive alternative to seeking funding. Unfortunately, there are many misconceptions surrounding this type of loan, and it can confuse firms—we’ll expound on this later on.
What Is Asset-Based Financing?
At Porter Capital, we believe that the best way to clear the air on any unfamiliar or seemingly intimidating financial tool is by understanding the basics.
Asset-based funding is a type of lending solution wherein money is loaned through a collateral-focused agreement. With this system, any applying company’s assets become the loan’s collateral, thus making any assets of value become fair game so that both sides can hold up their end of the bargain.
Generally, assets used in this type of loan range from inventory and equipment to accounts receivables and other property—essentially any type of item or unit that can be sold or seized for compensation. For many lenders, however, liquid collateral is vastly preferred instead of physical assets like equipment because it is easier to offload in case of delinquency.
Who Is Asset-Based Financing Available To?
Asset-based lending is an option that is only made available to businesses and companies instead of individuals. Small or medium-sized businesses that need funds can use this type of loan to cover short-term cash flow demands as it is readily available to those seeking it.
How Does Asset-Based Financing Work?
From a borrower’s perspective, the workflow of asset-based financing is relatively straightforward. If a company does not have enough cash assets or is incapable of showing the required amount of cash flow to cover the loan they’re seeking, a lender can approve the loan with a business’s physical assets acting as collateral.
For instance, printing businesses that need money can offer their printers and other equipment as collateral, while dental clinics can offer their x-ray machines or medical equipment under the same measure.
(This is the first part of a two-part guide on asset-based financing—for part two, click here!)
Seeking money for your company’s needs is often difficult because of how scarce funding can be internally. This is where asset-based financing can make a difference. Through the help of this type of loan, you can ensure that your business has all the financial support it needs without any unnecessary complications!
Porter Capital is the leading provider of asset-based lending services in Birmingham, AL, with over $6 billion in funding since our inception. Get in touch with us today to learn more about our services!