Things to consider when seeking asset-based financing
As Doug Foshee explains, with the growing global economic demands, small and medium sized businesses face unlimited challenges when it comes to financing and growing their businesses. Even more so, attracting financial aid from lenders to fund
equipment and asset purchases is increasingly becoming a challenging task for
business owners. Asset based financing is where a company or business seeks
capital and term loans through securing them with the business’s equipment,
machinery, inventory, accounts receivable or real estate.
Asset based financing helps a business to obtain lending by using its assets as collateral. It is quite common for small growing businesses with lenders
ranging from banks to non-bank lenders. A profitable small to medium sized
business may lack good contribution margins in terms of taxes, earnings before
interest and depreciation & amortization which may affect its ability to
attract unsecured lending. This is one of the situations where asset based
financing is a recommended solution. Here are some of the things to focus on
when considering asset based financing.
Asset based lending is a great solution especially for startup companies to
enhance financial growth and improve on business mergers and acquisitions. For
a business that is profitable but intends to grow its market share and
increase its competitive edge, opting for asset based lending can allow the
business to secure working capital that can help steer the business to higher
If the business qualifies for asset financing
Most lenders concentrate on businesses whose assets or collateral can be
easily turned to cash when necessary. Therefore, a business seeking to obtain
asset financing should analyze their business and determine whether they have
enough collateral that banks or other lenders can use to offer financial
lending. Mostly, patents, good conditioned heavy equipment in farming or
manufacturing, real estate, account receivables and good inventory increase
the chances of lending for a business.
Asset based lending usually attracts higher rates compared to normal bank
loans. However, the more liquid the asset a business uses as collateral, the
lower the lending rates. Many asset-based lenders provide up to 60% of the
asset value or 80% of the accounts receivable value as capital. Find a
credible lender and understand their lending terms well since this will affect
the business’s long-term success.