How Does Asset-Based Lending Work?

We’re living in times of worldwide economic uncertainty. According to CNBC, the situation hasn’t been this complex or confusing in the last three decades. This has increased the cost of doing business and has made it hard for companies to fulfill their financing needs. 

But alternatives to conventional lending, such as asset-based lending, has turned out to be great funding avenues for businesses.

Let’s see how asset-based lending work:

Asset-based lending: a definition

Asset-based lending (ABL) is a type of loan that’s secured by collateral. The name suggests that the loan or the inventory is secured by an asset from the following categories:

  1. Inventory 
  2. Accounts receivable
  3. Equipment 
  4. Property 

What makes asset-based lending different from other forms of financing is that it’s a business-to-business lending system;asset-based lenders lend to commercial borrowers, and not individual customers. 

Who qualifies for asset-based loans?

Both small and large-scale companies qualify for and benefit from ABL loans. However, lenders do prefer corporations that have a stable and profitable bottom line and assets with high value. Common beneficiaries are wholesalers, retailers, service providers, business owners, and even service providers. 

Lenders only approve ABL requests if the company needs funds to finance their working capital or cash flow, i.e., to keep their business running. In this case, the company uses its own assets as collateral. This can also include the company’s equipment or real estate. 

What are the conditions?

ABL loans aren’t defined or fixed. Each commercial borrower qualifies for a different amount, which is mostly decided by the lender as per their personal process. Most lenders offer loans that are equal to invalueto75% to 80% of the company’s total accounts receivable. However, if the borrower is using accounts receivable as collateral, they may be given loans equal to 50% of collateral. 

Most lenders prefer collateral options that are liquid, which means that they can be easily traded for cash. This is to make sure the lender doesn’t have to deal with a loss if the borrower defaults. 

This is also the reason ABL loans offer lower interest rates than conventional loans. The collateral gives your lender a way to recoup their losses if you don’t pay on time. However, the rates also depend on the borrower’s creditworthiness and history of payment. 

 

If you’re looking for reliable asset-based lending in JacksonvilleMiami or Tampa in Florida get in touch with Global Capital Partners Fund LLC. They help the asset-based lending commercial real-estate financing options. To contact them, drop them a message online.

Categories: Finance

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