Asset-based lending is expanding rapidly to meet the needs of growing businesses looking for working capital. It is the perfect financing solution for companies that may not qualify for conventional loan products due to insufficient cash flow, low credit score, or for the mere fact that they may be a startup.
So what actually is asset-based lending and how does it work?
Asset Based Lending: Basics
Simply put, asset-based lending is a form of financing based on business assets, generally inventory and account receivables, that are used as collateral. You put your future revenue on the line to gain access to the money right now.
Asset-based loans can be used for any business-related purpose. In most cases though, companies opt for an asset-based loan when they need working capital to keep their normal business activities running.
The value of an asset-based loan is calculated based on the value of assets that a company uses to secure the loan. Generally, a business is allowed to borrow between 70%–85% of the value of its account receivables and 50% of the value of its finished inventory.
Both banks and private money lenders offer asset-based lending solutions. Where banks usually have strict requirements for sanctioning an asset-based loan to a customer, private money lenders provide the loan on easy, convenient and flexible terms. Additionally, private money lenders also process the loan much faster than banks. A typical bank loan application takes at least 3 weeks to process. In comparison, a hard money loan application takes just a week to process. So there are very clear benefits of working with a private money lender when applying for an asset-based loan.
Asset Based Lending: What Happens When a Company Defaults
In case if a company defaults, the lender reaches out to the company to find out what’s going on with their business. If the company fails to reaches a resolution with the lender, the lender liquidates the secured assets of the company to make up for the difference in payments. In very rare cases, the lender may offer to make a settlement for a defined amount to cut their losses.
This completes our review of asset-based lending. We hope you found the read informative and helpful.
About GCP Fund
GCP Fund is a leading national commercial lender headquartered in New York. The company provides a complete range of hard money loan products to businesses and real estate investors. For more details, call 1-800-514-7350 or email at email@example.com.