Asset-based lending for small businesses explained

For small businesses & growing startups, the biggest challenge is to get financing in time, and in many cases, their resources and investments are locked in assets. Whether you are thinking of refinancing, restructuring, or need finance for merger/acquisition, you can consider the option of asset-based lending. Options like Accord Financial asset based lending allow businesses to have a loan when they need it, and they can repay the same whenever they prefer. In this post, we are sharing the basics of asset-based lending. 

Knowing the basics

In simple words, asset-based lending is a form of financing that rely on a collateral, or existing assets of the concerned company. This could refer to machinery, inventory, accounts receivables, or equipment. This form of loan and finance is also called asset-based financing. So, how does this work? When a company applies for an asset-based loan, they basically get to borrow a certain amount, based on the value of their assets. Lenders typically work with appraisers to determine the value of assets, and the borrower can take a part of the actual value of assets as the loan. 

Why consider asset-based lending?

More often than not, businesses don’t have the required working capital or cashflow, to take decisions related to acquisitions and restructuring. With asset-based lending, it is possible to get the amount needed, and often that is more than what a company would get otherwise from traditional lines of credit or lending. Of course, applying for an asset-based loan requires understanding of the terms & conditions, and the lender will be interested in knowing if your assets are worth the value claimed and if your company can eventually repay the loan amount. Note that asset-based loans are secured loans, so the interest rates are rather justified for the borrower, while lenders are also assured of having a collateral. 

Other things to know

The interest rates for asset-based loans are dependent on many factors, including the asset that is being used as collateral, the performance of your business, and overall credibility. Also, it is important to understand that accounts receivable financing is also a type of asset-based loan, where accounts receivables are pledged as an asset, typically invoices that are expected to be paid in less than 90 days. 

If you are considering asset-based loans for your business, we strongly suggest that you check for relevant terms & conditions and your business plans before taking the final call. 

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