Asset-Based Lending: A Detailed Introduction

The assets referred to in asset-based lending are usually your business’ inventory and/or receivables (outstanding invoices), which serve as collateral. You can generally access funds up to half the value of inventory or 70-plus percent of qualified accounts receivable on an approved asset based loan.

Gaining Approval for Asset-Based Loans

The key to getting approved for these funding options as a small company include:

  • Detailed, accurate (professional) financial statements in good order, showing profits.
  • Reliable reporting.
  • Ordinary (known to sell consistently) products/inventory.
  • Good customers, with excellent credit and a solid history of paying debts (ideally within 60 days).
  • And more requirements may apply, depending upon the lender.

Benefits of Asset-Based Lending for Your Business

Asset-based loans can help your company:

  • Finance rapid growth.
  • Fund a turnaround.
  • Finance acquisitions.
  • Operate through the slow season.
  • Loans are usually larger than your business credit card limit (or your business line of credit, if you have one).

Disadvantages of Loans Against Receivables and Inventory

When lenders use inventory or invoices as collateral:

  • You must have quality receivables, from customers with long-established businesses, high credit ratings and quick payment history.
  • You typically pay higher interest than other, more conventional, business loan products.
  • You may be charged an audit fee for due diligence and vetting of your customers and management of the loan.
  • You may be required to guarantee the loan with your personal credit or assets.
  • Your customers may need to send payments to the finance company, which may cause customer concern.
  • Your lender could hold back more than the typical fee “in reserve” if customers pay slowly, lowering your share of your customer’s payment and creating cash flow problems.
  • These loans often have high minimums, to make management costs for the lender worthwhile.

Learn more about asset-based lending options by contacting JNI Lending today.

SHARE IT: LinkedIn

Related Posts