A Closer Look at Asset Based Lending

Asset based loans are a vital source of funds for businesses. This secured debt can help businesses stay afloat and grow. Some of the reasons why businesses look into asset based lending is to finance working capital, shareholder buyouts, and even provide supplier discounts.

Before opting for asset based loans, it’s essential to understand all aspects of this form of lending.

What is asset based lending?

Asset based loans are when lenders provide funds that are secured by an asset. Assets can be in the form of real estate, equipment, and any other fixed asset that’s valuable. Asset based loans are limited liability loans and therefore great for businesses. In the event of nonpayment of the loan, the lender gains access to the underlying asset.

Lenders provide funds on the agreed percentage of the asset’s market value. Typically lenders provide 70% to 80% of the receivables.

Benefits of asset based loans

Asset based loans are an easy way for established businesses to gain financing. Compared to other financing options, asset based loans from private lenders are safer to opt for and tend to be cheaper. Since the loan is secured with collateral, the risk to the lender is diminished, therefore, interest rates on such loans aren’t as high.

Most companies tend to fall short on liquid assets while still having plenty of fixed assets. Asset based lending helps them get cash for their expenses without having to let go of valuable assets.

Types of asset based loans

Term loans

Term loans are loans provided for a certain payment of time. The lenders fix the repayment schedule and also require collateral. Term loans are used for more specific reasons like recapitalization.

Revolving lines of credit

Revolving lines of credit are another form of asset based lending. It provides the borrower a certain amount of credit that’s available to them whenever they require it. The debt repayments are made periodically, depending on the terms set by the lender.

Reasons to take out an asset based loan:

  • Working capital: Working capital is the money required by a business to complete day to day trading operations. Certain business models tend to require financing to fund their working capital if their current liabilities are high and current assets are low. Revolving lines of credit are ideal for such clients.
  • Peak and off-peak sales assistance: Many businesses have peak seasons for their products and services. Such businesses can struggle during certain seasons and require funding to manufacture and pay for other expenses.
  • Funding payroll: Entrepreneurs are struggling to pay their employees due to businesses being shut down all over the country. Asset based loans can provide temporary funding so that employees can be paid during this difficult time.

Global Partners Capital Fund is a well-reputed private lending company that has helped commercial clients for over 3 decades. Asset based lending is one of the many areas they specialize in. Growing businesses can fund working capital needs via their financing options and much more. They also offer hard money loans Memphis, TN. Call +1-800-514-7350 to speak with their agents.

Categories: Asset Based Lending

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