The Advantages of Asset-Based Lending
In the world of finance, businesses seldom have steady capital close at hand. Whenever a company needs ready access to capital, it has options in order 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 what the label is, this type of financing allows businesses to gain immediate access to funds. There are several advantages to using this type of lending over traditional forms of finance.
First and foremost, this style of lending is far easier to obtain than many other traditional types of lending. There is also a shorter turnaround time for the receipt of assets than there would be with traditional loans. The reason for the easy gain and quick turnaround is that asset-based lending is based on a company’s collateral. Companies are able to leverage their loan by using inventory, equipment, or accounts receivable. As long as a company can provide some proof of steady profit, they can be approved. Finally, asset-based funds have a looser set of parameters to follow, making them easy to manage over short- and long-term arrangements.
Another advantage to getting lending based on assets is the flexibility involved. The assets can provide the company more flexibility by increasing its financial stability as a whole. In addition, the company has very little if any limitations on the ways in which the capital can be used as long as it is for business purposes. This increased flexibility comes in handy, especially with companies that are experiencing rapid growth due to expansion or seasonal surges. And because it is asset-based there is flexibility in the amount of capital that can be borrowed.
Most companies are interested in the bottom line. And in the end, using asset-based lending saves companies money over many other types of lending, be it traditional or the more aggressive factor lending. With traditional means, a company’s interest rate is based on its credit rating, so if a company is new, if it qualifies, interest is generally higher until a stable credit history is established. Factoring can also be costly because factor lenders generally charge higher interest rates in order 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 making it advantageous to smaller companies.