Almost every business has liquidity issues from time to time.
This can be due to a period of slower sales, seasonal needs or a large outflux of cash due to inventory purchases. In these situations, financing is ideal for securing extra capital to take care of your business while you wait for invoices to catch up.
What can you do if you have less-than-ideal credit or other issues that make getting a traditional working capital loan difficult? Don’t give up. Asset-based lending is a great solution for this exact situation.
What Is Asset-Based Lending?
This type of financing leverages your business assets to act as collateral for a loan or revolving line of credit, by backing your loan in this way, it gives lenders an extra guarantee of repayment, which also makes it easier to get approved. These loans can make a huge difference in keeping your cash flow healthy.
What kind of assets can you use as collateral? There are traditional options such as vehicles, real estate, equipment of all kinds, heavy machinery, or really any asset that you can take to an auction and liquidate. It is the liquidation value that is the basis of how much you may be able to receive from the lender.
The size of the asset required is usually related to the amount of the loan you’re looking for. In the case of small loans for monthly operating costs, you may be able to leverage inventory, accounts receivables or computer equipment instead.
How Can You Use Asset-Based Lending?
The main reason to apply for a secure loan is to handle emergency payments. If you urgently need to pay taxes, cover operating costs, repair essential machinery or take care of payroll, this type of financing is ideal. It’s also possible to use asset-based loans in a proactive way, such as taking advantage of special discounts to get your inventory at much better rates. This option can be useful for business owners looking to purchase new equipment. Finally, you can use this kind of lending to repay high-interest credit card debts with lower-interest financing.
Why Choose This Type of Lending?
One reason that asset-based financing is popular is because it’s easy to qualify for. You don’t need perfect credit if your assets exceed the value of the working capital loan. Another benefit is that these loans are processed and approved quickly. It’s not necessary to wait weeks or months for approval. Often, you can receive funds within a few days or a week. When you have urgent business needs, this short time can be the difference between happy customers and lost profits.
If you manage your funds wisely, this type of lending is a useful tool for protecting your company, investing in excellent opportunities, and preparing for a rainy day.
I am the founder and CEO of Advisory Services USA Inc.
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