If your company has assets and requires working capital to grow and operate, one viable financing option you have is an asset-based loan.
That security and value of the loan are based on the collateral you pledge—not your company’s credit score or financial track record—which makes it an ideal financing option if your business is growing or doesn’t have a stellar credit history.
In fact, as traditional sources of capital are drying up, asset-based lending is gaining traction among businesses in the United States. Over the course of this article, we’ll go over the ins and outs of asset-based lending and discuss how it can be used to support business growth.
What Is Asset-Based Lending?
Asset-based lending is a form of business financing in which you leverage your business’s assets to secure a loan. The borrowing base (the amount they’re willing to finance) is determined by the lender and typically depends upon the value of the pledged collateral. The assets that can be pledged as collateral can include items such as equipment, inventory, and accounts receivables.
If the borrower fails to meet the terms of the loan agreement, the lender can recoup their losses by seizing and liquidating the pledged collateral.
Why You Should Consider an Asset-Based Loan?
Traditional means of financing, such as conventional bank loans, are primarily based on cash flow. To become eligible for such loans, you have to demonstrate that your business has a healthy credit score and a history of profitability.
Many small businesses struggle to meet these requirements, and this is where asset-based lending comes in.
Types of Assets that can be pledged as Collateral
There’s a long and varied list of assets that can be offered as collateral for an asset-based loan. Generally, liquid securities are preferred by lenders—assets that can be easily converted to cash without suffering a significant loss in value.
These are mainly items that you find at the top of your balance sheet: accounts receivables and marketable securities (bonds and stocks). You can secure a loan valuing up to 85% of the face value of such securities.
Fixed assets, such as real estate, equipment and inventory can also be pledged as collateral for an asset-based loan. However, lenders typically offer 50% of their face valuation.
In the absence of traditional finance, asset-based lending opens a fast and easy gateway to the world of instant capital, which allows you to keep moving forward. If you’re looking to secure a hard money loan in Houston, Dallas, San Antonio, TX or Denver, CO, get in touch with Global Capital Partners Fund LLC.