Asset-based loans can be very helpful for your business but can you get a loan based on assets these days?
If your business needs some money urgently, you can borrow against the monetary value things you own (assets) or plan to buy.
Assets Based Lending or Asset-Based Loans work in Miami, Chicago, UK, Singapore, or even anywhere real assets exist and businesses need loans to either stabilize or expand.
Assets-based lending or asset-based loans are any kinds of loan secured by an asset which means that when the loan is not repaid as agreed in due course, the asset can be seized and liquidated to recover the loan amount.
In this sense, a mortgage is a type of asset-based loan but this term is more commonly used when describing lending to businesses with assets not commonly used as a form of collateral in other types of loans.
What Does it Mean to Borrow Against Your Assets?
Asset-based loans give your business an opportunity to raise funds when it has exhausted other capital-raising opportunities or is searching for more immediate capital for business projects.
Asset-based loans usually come with a lower interest rate which makes it pretty easy for the borrower to pay but in the event of any form of default in repayment, the asset can be liquidated to recover whatever loan amount tied to the asset.
What this means for your business is that you can offer any tangible but valuable property to access a loan for your business; it can be a piece of machinery or valuable piece of equipment or even real estate.
This is also particularly helpful if your business does not have a good credit rating or financial track record.
What are The Types of Asset-Based Loans?
1. Accounts Receivable Financing
This is a financing arrangement that involves a lender and a business that has assets equal to the outstanding balance of unpaid invoices.
Since account receivables are usually recorded in companies’ balance sheets as assets, it makes it eligible to be used as collateral for asset-based loans – this is a liquid asset.
The process of issuing loans based on unpaid invoices is known as Factoring (read more about Factoring here) and companies that absorb invoices to issue out loans are called Factors.
Factors take over your unpaid invoices as assets for loan issuance and in turn recover their money from your debtors.
2. Equipment Financing
Equipment financing is a simple term used to describe a loan obtained by a business solely for equipment upgrades or purchases.
Business equipment can be any other thing apart from real estate; it can be a piece of manufacturing machine, set of furniture, or even computers.
With equipment financing, the equipment serves as collateral for the loan and can take possession of it should you default in the repayment of the loan.
3. Real Estate Financing
Real estate financing is the loan you need when you do not have enough money to either buy a valuable property or renovate one.
This is one of the best ways real estate investors secure funds to finish up an impending real estate deal.
It is usually assumed that you must have a lot of money to get started with real estate investing but this isn’t particularly true because there are so many real estate financing options that can help you at every stage of your real estate business.
You can get this type of loan from Private Money Lenders, Seller Financing, or even Peer-to-peer Lending.
4. Inventory Financing
Inventory financing is a short-term loan or a recurrent line of credit that a business can use to refresh its inventory for sale at a later date. These products serve as the collateral for the loan
If you need a lump sum to help in manufacturing a product you cannot finance, then you need this type of asset-based loan from a lender to help you finish up your manufacturing or purchase of inventory.
Think about this as a rainy day loan that helps you purchase and warehouse products for a later date – maybe a seasonal product.
One thing though, is that you must take care so that the products will not be damaged in the process, thereby making it difficult to repay loans.
What Do Asset-Based Loans Lenders Look For?
Since the major aim of assets-based loans is to help you sustain your business by holding on to your assets, it means that whatever assets you are offering as collateral must be valuable to the tune of the loan amount you seek.
Asset-based lenders are always on the lookout for companies with seasonal sales cycles – businesses like manufacturing companies and distributors.
They are also on the lookout for rapid growth companies with the best likelihood to rapidly expand their production (and revenue).
For businesses like this, the loan would help them add to staff, inventory, and other things that facilitate the growth of the company.
There are other things they look out for like businesses experiencing ownership transition or even private equity companies.
The major deal here is that these businesses or companies can offer genuine and valuable assets as collateral for any amount they are looking for.
How to Get Asset-Based Loans for Your Business
If you need to access asset-based loans for your business, you must apply with a lender with the identified assets you wish to tender as collateral and submit any required [valid] documents that come with it.
The lender, in turn, reviews your loan application to find out if you qualify for the loan to the tune of the amount you are requesting.
You will receive approval and the funds dispatched to you once you meet every required criterion that facilitates the release of the assets-based loan.
The process is usually straightforward and you can even use a few liquid assets like Certificates of Deposits (CDs), Checking accounts, Mutual Funds, Stocks, and Bonds as collateral for asset-based loans.
The most important part is that whatever assets you choose to tender as collateral can be easily converted to cash to recover the loan amount tied to the asset.
There are banks and several funding companies that will be glad to review your assets and dispatch the loans you need within a very short while after your request.