Can your Business Benefit From an Asset Based Loan?
When your business is growing fast, lack of cash flow is a common problem. Traditional loans can be difficult to qualify for, often restrict how funds can be used, and are not always available to a new business due to strict qualification criteria. When you need cash fast, you can’t wait to wade through red tape and hope for an approval. If increasing liquidity without a conventional l loan would benefit your company, an asset based loan just might be the solution to your cash flow woes. Consider the following benefits of asset based loans to determine if this type of lending is right for you.
Because it is often easier to qualify for an asset based loan, you can typically receive approval for this type of funding more quickly than a traditional line of credit or conventional loan. While newer businesses may not have the credit to qualify for these types of funding, they may still meet criteria for an asset based loan. In order to qualify, you will need assets to leverage as collateral for the loan. Most often, this is done using your accounts receivable as collateral, but inventory, real estate or equipment may also be used as long as your business is in good financial standing.
Another benefit of an asset based loan is its flexibility. As long as they are being used for your business, these loans usually have less covenants and are less restrictive than other types of financing. Lenders typically don’t get involved in how the money is used or how the business uses the funds. This gives you more freedom in how your run your business while maintaining compliance with the terms of the loan. In addition to generally increasing cash flow, other uses for asset based loans include purchasing equipment, investing, improvements to the business and day to day expenses.
While this type of financing is usually more expensive than a traditional loan, it is often less expensive than similar alternative financing options, such as factoring. The cost of a factoring line is based on discounting invoices by a percentage, usually ranging up to 3.5% per 30 days. Alternatively, asset based loans are based on an annual percentage rate, usually making them much more cost effective than factoring. Establishing a solid track record with this type of loan can help you to qualify for a conventional loan in the future, which will likely be even less expensive than asset based financing.
Contact Crescent Capital Solutions today for more info on asset based loans.