Asset-Based Lending Solutions for Business Growth

Asset-based lending (ABL) is a form of secured lending in which a business takes loans on the basis of its assets, e.g. accounts receivable, inventory, machinery, or real estate. The value of assets pledged is normally used to establish the amount of a loan.
The asset-based lending is best suited to those companies that hold substantial assets in their balance sheets and cannot attain the traditional unsecured loans because of the unreliable cash flows or insufficient credit records.

Asset based lending facilities can be tailored depending on the nature of assets you possess in your business. ABL uses common assets as collateral which include:

Accounts Receivable: Accounts receivable are one of the most commonly utilized assets and they are outstanding invoices or payments pending with customers. Lenders will normally advance a percentage of your receivables.

Inventory: Inventory may act as security, especially when it applies to companies in the retail, manufacturing or distribution industry.

Machinery and Equipment: Businesses that are capital intensive can borrow money with the help of their equipment and machinery as security.

Real Estate: Asset-based lending is also high with the capacity of borrowing commercial real estate holdings.

Intellectual Property: In other instances, companies having high intellectual property (IP) which includes patent, trademarks or copyright can use these resources to obtain funding.

Asset-based lending has a number of major benefits when compared to other forms of financing that make it an appealing choice to businesses of all levels:

1. Improved Cash Flow Asset based lending is fast access to capital and it assists the businesses to enhance their cash flow. This can come in handy especially when the demand is high, there are seasonal changes or when there are some unforeseen financial difficulties.
2. Flexible Loan Terms Asset-based lending solutions are more flexible regarding repayment terms and the amounts of loans as compared to traditional loans. The amount of loan raised will grow with any increase in the value of your assets and this gives you continued access to the capital.
3. Lower Interest Rates As asset based loans are secured by the assets of the company, the interest charged by the lenders is usually lower than that charged to unsecured loans. This may lead to huge cost reduction in the long run.
4. Faster Approval Process The conventional bank loan is usually associated with a long process of approval. On the contrary, asset based lending is generally characterized by a much faster underwriting process which enables you to have the money on hand when you need it the most.
5. Higher Borrowing Strength Asset based lending also allows the businesses to borrow relatively higher sums than in the unsecured loans because the loan amount is directly proportional to the value of the collateral.
6. Preserve Ownership The best thing about asset based lending is that the business owners can raise funds without having to relinquish equity or ownership interest in their business. This is one of the greatest benefits to the entrepreneurs and business owners who wish to have total control over their operations.

Asset-based loan acquisition is an easy process. The following is the mechanism.

1. Asset Valuation: The first thing that is done by the lender is to evaluate your assets to know their current market worth. The most frequently used ones are accounts receivable, inventory, equipment and real estate.
2. Loan Approval: After the appraisal of the assets is done, the lender will then approve a loan amount as a percentage of the value of the asset. Indicatively, accounts receivable can be financed at 70-90% of their worth, whereas inventory or equipment can be financed at a low percentage.
3.Funds Disbursement: When the terms of the loan are agreed, the money is received within a short period and you can utilize the capital to invest in the business in terms of expanding, paying the salaries, or buying inventory.
4. Ongoing Monitoring: During the loan tenure, the lender will be keeping track of the value of the pledged assets so that they are as per the agreed-upon collateral thresholds.
5.Repayment: Repayment terms are given in different ways depending on the cash flow of your company. The more you pay back the loan the higher your capacity to borrow more money, which can be taken whenever you need it.

Asset based lending is a versatile financial facility, which can be applicable to a broad range of companies including:

1. Growing Businesses: The rapidly growing companies may need an additional working capital in order to meet the increased demand. The asset based loans provide the necessary liquidity to enable growth.
2. Seasonal Businesses: Asset-based lending is applicable to businesses that have seasonable revenue as the company is able to borrow any time it is experiencing improved revenues and repay later when the revenue reduces.
3.Firms with poor credit record: Asset-based loans are made available to those companies that may not have a history of credit or restructured in a manner that the assets are substantial.
4.Businesses with Cash Flow Challenges: Stabilization of operations of companies with temporary cash flow problems due to slow receivables or unforeseen expenses can be carried out with the help of asset-based lending.

The asset-based lending solutions are especially suitable to businesses that:

1. Have significant assets such as receivables, inventory, or equipment.
2. Have cash flow problems in the form of slow receivables or seasonal fluctuation.
3. Requires urgent funds to grow, expand or to operate.
4. Be in the industries that require a substantial amount of assets such as manufacturing, retail or distribution.
An asset-based lending option may be the solution to your business to gain the financial flexibility and support to grow without taking on too much debt provided your business fits these criteria. Asset-based lending solutions are a great solution in case your business requires a dependable, and versatile financing solution to unlock your assets and access the capital you require to grow. Asset-based lending is an avenue through which with the right assets, your business will be able to get the liquidity needed to manage cash flow, grow operations, or acquire new opportunities.