How Asset-Based Loans Work

There are a lot of options out there for companies looking to use business assets to secure credit in various forms. Sometimes, the best option is a traditional term loan, though, not a cash advance in one form or another. Luckily, there are even asset based lending solutions for term loans, providing you with the financing you need secured with an asset that helps lower the cost of capital. Asset based loans are a little different from cash advance products based on one or two business assets, though. Typically, they look at the big picture, basing the loan on your combined asset values across a range of categories instead of financing the loan with just one of them.

Loans Tailored To Your Company

When you work with a company that offers term loans and credit lines, they typically start with a survey of the available business assets. Those differ from business to business. In some cases, it might just be inventory and invoices, or inventory and a merchant account for cash businesses. In other cases, there will be inventory, equipment equity, invoices, and sometimes even real estate equity to consider. Not all lenders look at real estate or equipment when calculating asset loans, either. Finding a company whose formula for asset-based term loans includes the assets you want to finance is the first step toward getting the customized loans you need at the lowest available cost.

Managing Cash Flow With Loans

When you have a predictable business cycle with only a few periodic lulls throughout the year, asset based lending can be a great way to keep working capital on hand without dipping into your reserves. Since they can be used as needed, you don’t need to continuously finance to maintain your best cost efficiency. Instead, you can get working capital when you need it, pay back the loan quickly during a boom, and then work with cash on hand until the next time you reach the quiet part of your company’s yearly cycle.

Finance Expansion, Equipment, and More

Cash flow management isn’t the only reason to look into asset based loans, either. You can use them as an alternative to securing a new equipment purchase with the equipment itself when you need to buy machines for projects and you don’t want to wait for the lengthy loan approval process through traditional lenders or their down payment requirements. They’re also useful for working capital loans when you need supplies or additional personnel to start a big project, providing a path to expansion without dipping into your company’s cash reserves. What would you do with an affordable working capital loan based on your business assets?