Entrepreneurs may face the challenge of maintaining sufficient cash flow for their start-ups. A positive cash flow may be achieved by ensuring that your expenses do not exceed your business earnings. However, there may be some unexpected expenses or losses incurred from bad credit that create cash flow deficiencies. One means of compensating for negative cash flow is through asset-based lending. Here is further insight into how to boost your cash flow with asset-based lending.

What Is Asset-Based Lending?

Asset-based lending refers to the use of business assets as leverage to secure access to additional funds. You are allowed to use inventory, equipment, real estate or account receivables as collateral to gain access to this type of loan. Lenders are more willing to approve the loan when it is secured against such assets. The finances may be used to increase your cash flow, which is often advantageous when expanding your company or catering for unforeseen overheads.

How Do You Qualify for Asset-Based Lending?

Typically, small and medium-sized businesses may qualify for asset-based financing as long as they have assets and are stable. The assets to be used as collateral should not be pledged to another loan provider. If it has already been promised to another loan provider, then they should first be informed. The start-up qualifies to be considered stable if it does not have any tax, legal or accounting issues.

What Are the Benefits of Using Asset-Based Lending?

Asset-based lending is a flexible source of financing that is ideal for businesses that happen to experience periodic fluctuations in their sales. It conveniently provides faster access to capital than other traditional loan forms from conventional monetary institutions. Also, one does not necessarily need a high credit score to qualify for the loan. A key benefit that enables asset-based lending to stand out from other sources of financing is the ability to continue using the asset in your business operations while it still serves as security.

What Is the Cost of an Asset-Based Loan?

The size of the loan, the type of security and the prevailing risk are usually used in determining the cost of an asset-based loan. The annual percentage range is an additional variable that ranges between 7% to 17%.

By understanding what asset-based lending is, how to be eligible for it, its benefits and the variables involved in determining its cost, you may be able to use it to increase your cash flow effectively.