SummaryBusiness funding - asset-based lending.
If you need funds to help your business grow or expand, a business loan could offer the solution you need. In this article you will find information about asset based lending and how to get the right loan for your business.
Securing an asset based lending should be relatively easy if your business has good financial statements, good reporting systems, commonly sold inventory, and, finally, clients who have a track record of paying their bills.
- Asset based lending is the business of loaning money using the borrower’s assets as collateral.
- The main collateral is usually accounts receivable. However, other collateral such as inventory, equipment, and other assets can also be used.
- Asset-based lenders primarily serve small and mid-sized businesses that need to routinely cover short-term cash flow demands.
- The APR of an ABL ranges from 7% to 17%.
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Asset based loans are used by companies that need working capital to operate or grow.
An asset based lending or line of credit may be secured by
- accounts receivable
- other property owned by the borrower
Terms of asset based lending
The terms and conditions of asset-based loan depend on the type and value of the assets offered as security. Lenders prefer highly liquid collateral such as securities that can readily be converted to cash if the borrower defaults on the payments. Loans using physical assets are considered riskier, so the maximum loan will be considerably less than the book value of the assets.
- Interest rates on asset-based loans are lower than rates on unsecured loans since the lender can recoup most or all of its losses in the event that the borrower defaults
However, the interest rates charged vary widely, depending on the applicant’s credit history, cash flow, and length of time doing business.
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What is the borrowing base?
The borrowing base is the amount of money that the asset based lending company lets you borrow. Usually, it is a percentage of the value of the collateral that has been pledged. Commonly, businesses can borrow 70% – 85% of the value of their accounts receivable. The borrowing base of inventory and equipment is often 50% or less.
Read more about term loans for business or apply now for asset based lending!