Asset Based Loans: An Instant Provider of Funds and Ongoing Cash Flow for Businesses!

Business that are rapidly developing and gaining high control over market but unfortunately are low in capital can make effective usage of asset-based loans. An asset-based loan is a short-term loan secured by a company’s assets such as real estate, accounts receivable (A/R), inventory, and equipment. The loan may be supported by either a single category of assets or some combination of the assets mentioned.

Asset based loans can also be used for finance procurements. However, the typical borrowers of this kind of loan are manufacturers, distributors, and service companies with a leveraged balance sheet whose seasonal needs and industry cycles often hamper their cash flow.

Asset Based Loans: The Process& Features
An asset based business line of credit is usually designed to allow the company to bridge itself between the timing of cashflows of payments it receives and expenses.
The range of financial service companies that offer asset-backed lending is huge. The Commercial Finance Association’s membership includes banks and many independent finance companies.

Asset based lenders ensure that the company that is asking for the loan has accurate and detailed financial information. This in turn makes the lender comfortable that the company they are dealing with has long-term feasibility and effective control over business. An asset based lending program also supports secondary financing in some special cases.

Asset-based lenders advance funds based on an agreed percentage of the secured assets' value. The percentage is generally 70 percent to 80 percent of eligible receivables and 50 percent of finished inventory.

Asset based loans are beneficial for companies who have:

• No, little, or terrible credit.
• Little income to support the payments, and may need to rely on the loan itself to pay back the lender until the property is either sold, refinanced, or their income resumes.
• Little or no down payment on a large commercial purchase transaction, as would otherwise be required, because they are buying it under value.
• Struck a deal with the seller to lend them the remaining balance of the purchase price, not covered by the first position mortgage.