Do you have a small business that needs working capital to keep afloat? Perhaps you don’t have the strong credit score or sales you need for traditional financing but do have strong assets that you can use for collateral. In situations such as these, you may be eligible for asset-based lending. Check out this quick guide to learn more about this type of financing and how to obtain it.
Who the Funding Helps
Before you apply for this type of financing, you must determine if it will fit your needs. Asset-based financing is best for business owners who need working capital to keep daily operations happening. It isn’t a good choice if you are seeking to expand your business beyond current operations, however.
What You’ll Need as Collateral
Of course, if you want to use asset-based lending, you’ll need to have assets. Accounts receivable is the most common type of collateral because they typically have a lot more value. However, if you don’t have customers who have outstanding invoices, you may be able to use your machinery, business equipment, inventory, or even your company’s property as collateral to get the financing you need.
How the Financing Works
The cost of loan repayment depends on how much your collateral is worth and how much you were funded. You will repay that amount, as well as an annual percentage rate for interest. The percentage typically ranges anywhere from 7% to 17%. Keep in mind that some lenders also charge other fees, so be sure to read the contract thoroughly and ask questions before agreeing to anything.
The Benefits of Asset Based Financing
Asset-based financing has several benefits, but one of the biggest ones is that it can be obtained within a few days, if necessary. This is especially beneficial for companies that find themselves in the middle of a financial emergency. This type of financing is also typically easier to be approved for, has more flexible terms, and doesn’t cause you to be in tons of debt if you use your invoices as collateral.
Regardless of why you need asset-based lending, be sure to do your due diligence before signing a contract with a financer. Looks for lenders that are licensed and insured, have excellent reputations with current and past borrowers, and are willing to answer questions to help you get exactly what you need to keep your company afloat.