Asset-based lending takes the money that is owed to a company by its customers or in stock and uses it to fund working capital or buy equipment. Because these assets are often not worth the same as their face value, the interest rate charged on these loans tends to be high. The duration of these loans tends to be short, so they are a good source of funding when a company needs additional capital but doesn’t have time to go through the standard loan application process.
Is this type of loan a good idea for your business? Read on to find out.
Asset-Based Finance and Lending: Is it a Good Option?
Asset-based lending is definitely a good option for startups or companies with strong cash flow and a sound business plan. It’s particularly useful if you’re looking to purchase very specific equipment, furniture, or computers that you can’t easily purchase with a bank loan. It’s also useful for large companies that don’t have time to wait for their loan to be approved.
This type of lending requires very little paperwork and is generally fast, so it fits well with the startup world. It’s also much faster than applying for more traditional bank loans.
Benefits of Taking Out an Asset-Based Loan
A major benefit of taking out an asset-based loan is flexibility. There’s no interest rate ceiling, so if you’re willing to pay the higher interest rate, you’ll usually be approved for the loan no matter the amount you’re requesting. Requirements for taking out a loan are also far less stringent than for a traditional small business loan, so you may be able to obtain funding more quickly. If you’re having trouble acquiring small business financing, this type of loan may be a good option for you.
Asset-Based Lending is for Businesses
Asset-based lending is most commonly used to help businesses with a strong cash flow that are looking to purchase specific equipment (think equipment leases). It can also be used as an alternative to bank financing in situations where you have time constraints that make it difficult to complete the entire loan process.
How Do Asset-Based Loans Work?
Asset-based loans are typically short-term, with a seven to twelve-month time frame. You can be approved for larger amounts of money, with longer terms and higher interest rates than traditional loan options, which makes it a viable option for startups. Here’s how asset-based loans work: you list your assets, including bank statements, tax returns, and property records, and the lender either buys or pledges the assets that are listed on a promissory note. When you take out an asset-based loan, you’ll receive an advance on the assets, and then you repay that amount over time.
Asset-based lending is an excellent option for startups when you’re looking for a short-term loan, and there are no other options. It’s also a good option for established businesses that want to buy specific equipment or furniture. Look for a lender with a good and stable reputation and a history of working with startups and small businesses to ensure that you are getting a good deal.
If you are in need of an asset-based loan, come to Porter Capital! We offer working capital solutions to businesses all over the country in a variety of industries. As a direct lender and factoring company, Porter Capital has provided over $6 billion in funding since its inception. Call us and inquire about asset-based lending today!