The world of small business finance is vast. One of the most popular approaches to funding a business’s growth is asset-based lending. But what is it, and how does it work? In this blog post, we’ll help you learn everything you need to know about asset-based lending to boost your business today!
What is Asset-Based Lending (ABL)?
Asset-based lending refers to a type of financing where a business can leverage its assets to generate capital. Commercial banks and asset-based lenders such as Merchant Cash Advance companies often provide this type of funding.
Asset-based credit is often referred to as business credit since it is not based on income but rather on the value of the business itself. So if your business owns an asset that has value, you can use it to attain financing.
The most common assets used for this form of financing are real estate and equipment – anything that can be used to grow or expand a business.
What are the Benefits of ABL?
Asset-based lending is widely used in the small business industry, as it offers several benefits to small businesses.
First, it allows business owners to raise funds without giving up equity. While income-based financing is usually based on your business’s revenue and profits, asset-based lending is based on the value of your business’s assets, which doesn’t put a large amount of pressure on your revenue and profits. In revenue-based financing, the lender will often want a large equity stake – but in asset-based lending, you won’t have to give up any of your company’s ownership.
Secondly, asset-based lending does not require a long-term commitment. In other words, you can start and stop the loan whenever you want, as long as it is within the terms of the agreement.
And lastly, ABL loans are more flexible than traditional debt. Since the loan is based on your business’s assets, you have more freedom to use the funds however you want. You can use it for anything from expanding your building to purchasing new equipment.
Who is Eligible for ABL?
Anyone with a viable business idea and an asset they can leverage can apply for an asset-based loan.
However, most applicants are businesses with a proven track record of success and established experience in their industry. This is because asset-based lending is a riskier form of financing since the lender does not have a clear picture of your income or profits. Therefore, a lender will usually look for businesses that strongly influence the loan’s success.
How to Apply for an Asset-Based Loan
If your business meets the requirements, the application process for an asset-based loan is relatively simple.
First, find an asset-based lender willing to work with your business. You can do this by searching the internet or asking other business owners for recommendations. Once you’ve decided on a lender, you’ll simply have to fill out a short application.
Next, the lender will look over your credit and business history. When they are satisfied with your application and credit report, they’ll send you the terms of your loan. This is usually a speedy process, so you should have a decision within a day or two.
After you accept the terms, the lender will work establishing your loan. This may require some legal and tax paperwork and establishing a line of credit. However, you shouldn’t have to wait too long to get your money.
Grow Your Business
By leveraging your assets, you can potentially finance a new business venture, grow an existing one, or even completely avoid financing needs altogether through ABL. Having adequate documentation of your assets is the first step to making this strategy work for you.