Asset-Based Lending Advantages
In the world of finance, businesses rarely have steady capital close by. Whenever a company needs ready access to capital, it has options to gain that access. One of those options is the process of asset-based lending. Asset-based lending or financing is also known as commercial financing. Regardless of the label, it allows businesses to gain immediate access to funds. Asset-based lending has many advantages compared to traditional forms of finance.
First and foremost, this style of lending is easier to get than many other traditional types of lending. A shorter turnaround time exists for the receipt of assets compared with traditional loans. Asset-based lending is based on a company’s collateral. Companies leverage their loan by using inventory, equipment, or accounts receivable. As long as a company can provide some proof of steady profit, they get approved. Finally, asset-based funds have a looser set of rules to follow. This makes it easier to manage over short- and long-term arrangements.
Another advantage to getting lending based on assets is the flexibility involved. The assets provide the company more flexibility by increasing its financial stability as a whole. In addition, the company has little if any limits on the ways in which the capital can be used. Just be sure it’s for business purposes. This increased flexibility comes in handy, especially for companies experiencing rapid growth due to expansion or seasonal surges. Because it is asset-based there is flexibility in the amount of capital borrowed.
Most companies are interested in the bottom line. In the end, using asset-based lending saves companies money compared to other types of lending. With traditional means, a company’s interest rate is based on its credit rating. So if a company is new and qualifies, interest is higher until a stable credit history is established. Factoring can also be costly because factor lenders generally charge higher interest rates to increase their profit margin. In addition, using this type of lending allows companies to not only grow their business, but also for businesses to build their credit rating over time.
Asset-based lending is a great alternative to traditional lending that is not as aggressive as other lending sources. This type of lending is easy to obtain and is more time sensitive. It also allows for more flexibility and higher growth potential. This makes it advantageous to smaller companies. Give us a call today to discuss all your options.