There are many options for getting business financing. Depending on the unique circumstances of your business, one option may be significantly more advantageous than others. You may want to take advantage of asset-based lending. This is a powerful form of financing that takes advantage of the value of your assets to get better terms.
How ABL Asset-Based Lending Works
When you borrow using your assets, you are using them as collateral. If you default on the debt, the lender could use those assets to recoup the remaining principal of the loan. You can use a variety of assets to secure your loan. Buying real estate or equipment and using the purchased item as collateral is probably the most well-known arrangement. However, you can also use inventory, accounts receivable and existing capital assets for this type of lending.
Benefits of ABL
There are many great reasons to consider ABL. The following are some of the most noteworthy advantages:
- Easier Approval: When you use assets as collateral, there is a greater focus placed on asset value and less on performance ratios. Therefore, if you have less-than-stellar credit or financial performance, you can still get financing by leveraging your assets.
- Greater Flexibility: Many lenders, especially non-traditional ones, can offer greater flexibility to accommodate various circumstances. There are fairly narrow criteria required by banks and other traditional lenders. So, this can help many businesses get financing.
- Solution for Cash Flow: One of the most common challenges that businesses face is insufficient cash flow. Getting the right asset-based financing, such as a line of credit, can help you to overcome those issues and ensure that your business always has operating capital.
Drawbacks of ABL
The most significant drawback of this style of financing is that you may need to surrender your assets if you default on the loan. If you are putting up inventory or major capital assets, you may find yourself in a position where continued operations are almost impossible.
Working with non-traditional lenders to get an asset-based loan may be more expensive in some cases. While assets can often reduce the rates that you need to pay for an equivalent loan, less conventional loans are always more expensive. So, it may be better to focus on improving your credit and pursuing a more traditional loan.
Discover more about asset-based lending and whether it can work for you. This may be the solution you have been seeking to ensure your business’s success.