How To Use Asset-Based Lending
If you are looking for a loan for your business, you will need to choose between the two primary types of financing: asset-based and credit-based. Although borrowing without collateral may sound preferable, there are some situations in which asset-based lending is a significantly better option. Understanding how and when to leverage this can help you make better choices for your business.
What Is an Asset-Based Loan?
As the name implied, an asset-based loan uses your assets as collateral for the loan. This contrasts against a credit-based loan that is unsecured, meaning it doesn’t have specific assets as collateral.
You may use major capital assets to secure your loans such as real estate or equipment. Some asset-based loans are backed by other assets such as inventory or even accounts receivable. Different lenders have their own rules for what they will and will not accept. Typically, larger loans need to be backed by more reliable assets.
Should You Use One?
There are some great reasons to consider asset-based financing. Perhaps the most significant benefit is that you are more likely to qualify for a loan if you can secure it against assets. The risks significantly lower for the lender because there is a clear way to recoup its losses if you default.
For the same reason, you can often secure lower interest rates if your loan is backed by your assets. This somewhat depends on what assets you are using as collateral. However, you can usually expect to get more money for a lower rate compared to an unsecured loan.
Finally, asset-based financing typically moves faster. So, you can secure the funding you need without having to wait.
What Can You Use Asset-Based Financing For?
An asset-based loan can be used for almost any business need. For example, you could use it to help cover a major purchase such as acquiring equipment or expanding to a new property.
Additionally, you can use this type of lending for paying off higher-interest debt or building working capital. The flexible terms and relatively low risk for the lender mean that you can use your asset-based loan with fewer restrictions.
Learn More Today
Discover more about what to expect from asset-based lending. This can be a very valuable form of financing. For many businesses, it is the key to securing the funding they need at the right terms. The more you know about this type of loan, the better prepared you will be to grow your business.