Sometimes, even if a business is growing and successful, it may not have the working capital it needs to cover its expenses and grow from day to day. This is especially possible if the business has a lot tied up in its account receivables.
Traditional loans are available for businesses but they don’t work for all. Fortunately, asset-based loans are more ideal for companies that need financial flexibility. Some organizations don’t qualify for a bank loan or have a situation that doesn’t work with well with the financing that banks offer. They only need an influx of cash to maintain their daily operations. An asset-based loan is a kind of commercial finance that uses accounts receivables, equipment, or inventory as collateral for a working capital line of credit.
Asset-Based Financing vs Bank Loans
Bank loans depend on a borrower’s credit and previous borrowing history while asset-based loans work by using collateral as the foundation or a loan. Banks will look at the borrower’s credit history and their ability to pay bills and manage their finances in the past. Providers of Accord Financial asset lending services look at the present and future to offer a loan based on the funds that are coming the borrower’s way but currently tied up in accounts receivables.
Kinds of Companies that Can Benefit from an Asset-based Loan
This kind of loan can benefit companies that need to balance their cash flow and need an influx of cash to pay regular business expenses like payroll. Asset-based lending works off of assets a business already has, making it great for businesses that have seasonality present different high and low revenue generating periods. This revolving line of credit continues to have an ongoing repayment process, as opposed to securing long-term debts that require payments every month.
Benefits of Asset-Based Lending
With asset-based lending, a company gets funds against assets they hold, including inventory, machinery and plant, intangible assets, as well as work in progress and property. Lenders will look at the quality and value of these assets and put together a package that covers them all. This type of financing is affordable and cost-effective when compared to other forms of finance. It can match where there is strong growth in a business. With this option, a cyclical business can flex up and down during its peak season since the lender knows the collateral is there. Also, it supports business growth by offering companies the working capital they need.