Since it’s typically the most cost-effective form of borrowing, a conventional unsecured bank loan is usually the first choice for businesses seeking finances to expand and grow their enterprise.
However, the majority of SMEs are either growing rapidly, don’t possess a lengthy track record, or don’t have a credit rating that’s high enough to be approved for a traditional bank loan.
Thankfully, businesses seeking additional financing have another situation: asset-based lending. Unlike conventional bank lending, where the borrower’s future cash flow is estimated and their operations evaluated, the collateral put up for a loan is the basis for asset-based loans. The borrowing company’s accounts receivables are commonly used as collateral for an ABL.
Asset-based lending actually provides a more flexible option when it comes to financing a company’s current operations and requirements for growth—which is why it’s no wonder that the US asset-based market has grown exponentially over the last few years.
However, working with an asset-based lender has its own unique set of challenges. To help you get the best out of ABL, here are a few pro tips:
Choose a Lender Who Understands Your Situation
One of the best things you can do is selecting a lender who sympathizes with your situation. These are mostly lenders that started out as a small enterprise themselves or have ties to the SME community in your region. Such companies are more likely to sympathize with your situation and may even be flexible with credit requirements.
Establishing a Long-term Business Relationship
While working with an asset-based lender may not be your primary choice, if you need that kind of help, you’ll probably need it for a while. Keeping this consideration, don’t try to fool your lender by making excuses for slow business profits or late payments. Be forthright and honest. If you’re working with a lender who understands the challenges SMEs face, they will sympathize with your circumstances.
When you’re working with an asset-based lender, it’s also important to keep the future in mind. If your current agreement ends on a bad note due to miscommunications or missed payments, it’s likely that you’ll find it difficult to secure a loan in the future.
Have Reasonable Expectations
Like we’ve already discussed, getting an asset-based loan may not be your primary financing option, and may require you to open your books in a way that may not be to your liking. If you’re a service provider, you’ll have to prepare and submit documents that outline your monthly revenues and expenses. If you’re operating a retail business, you’ll have to disclose your current inventory levels. You may even be required to create reports and forecasts on these figures so your lender can know if you may be in potential problems in the future.
Looking to secure an asset-based loan for your business? Get in touch with Global Capital Partners Fund LLC. They offer a wide range of financial solutions, including hard money loans, to commercial clients in Houston, Dallas, and San Antonio, TX, and Denver, CO. Contact them at 1-800-514-7350 for details.