Business owners often require additional sources of funding to improve their cash flow and enable their companies to continue to thrive and grow. An effective solution to financing difficulties is an asset-based loan. A typical example of this type of funding is a mortgage, which involves the borrower using the real estate they are purchasing as collateral. Asset-based lending also sometimes takes the form of a revolving line of credit. Here is some important information about asset-based loans.
The Basics of Asset-Based Loans
The basis of an asset-based loan is the collateral that the borrower puts up to ensure that the loan will be repaid. Approval for these loans depends upon the value of the assets that the borrower has available to use for collateral. The lender calculates the loan’s amount as a percentage of the value of the assets. The borrower must make timely payments or the lender can claim the collateral.
Assets Commonly Considered as Collateral
As mentioned above, real estate is collateral for mortgages and also for bridge loans obtained for property development. If you need equipment, you can obtain financing for it using the equipment as collateral. If you are short of inventory, you can use an asset-based loan to purchase the goods you need, and the inventory you buy is the collateral for the loan. Another popular form of collateral for an asset-based loan is unpaid accounts receivable.
Benefits of an Asset-Based Loan
Because your assets become the collateral for an asset-based loan, there is less risk for lenders, and they are more willing to consider your application even if your credit score is not high. This makes them easier to obtain than loans from traditional banks. The approval and funding process is also significantly faster. This is an important consideration if you need financing quickly for upcoming projects.
For more advice on stabilizing and growing your business by means of an asset-based loan, contact WHW Capital.