Asset Based Lending: How It Can Help Your Business
Improving your company’s cash flow and making it easier to manage your day-to-day business commitments are goals for any manager looking to make sure a business grows. That’s why you need access to ready credit resources. Without the ability to meet your commitments on time through credit, you’d run into a lot more start-and-stop action in your business. Unfortunately, short-term credit tends to be the most expensive to obtain, and revolving credit lines also come with a number of covenants designed to help lower lender risk. Luckily, asset based lending provides options that keep costs down.
The difference between asset based credit and regular credit is simple. Asset based programs use real assets with tangible value to secure the debt, making it easier for investing lenders to recover their money in the event of a default. This lowers the cost without making them take longer to access, allowing you to get short-term lending for things like inventory purchases and debt consolidation.
The most common form of asset based lending is accounts receivable financing, which uses your outstanding receivables as the basis for the cash advance. This is especially attractive to many entrepreneurs and business managers because the payment owed is turned over to the lender for collection, reducing the overhead necessary on the borrower’s part by outsourcing a segment of the company’s accounts receivable.
Other forms of asset based financing will use similar assets with slightly different repayment structures. For example, purchase order financing might be used before manufacturing even begins to allow a company to access raw materials and labor that lets the work get done. Merchant account financing provides retail businesses and other companies with a large volume of credit card transactions opportunities to stock up on inventory or access working capital for other purposes, too.
Asset based lending does not come without risks. Like all forms of credit, it requires judicious use. There are forms, though, that provide non-recourse debt options to entrepreneurs under the right circumstances, and the repayment options for asset-based credit tend to be more flexible than options for traditional credit programs.
Last but not least, asset based programs are fast. If you want to be able to turn around an application in just a day or two and get your cash quickly, the best way to do it is to establish a working relationship with an asset based lending company. When you have a lending partner who understands your business and knows your financial health, you can get approvals even faster.