In layman’s terms, an asset-based loan is a loan that is based upon your assets, such as accounts receivable, being used as collateral. This means that you are risking your future revenue to guarantee access to capital right now.
An asset-based lender advances funds based on a percentage, typically 70-80% of accounts receivable and 50% of the value of your inventory.
How to Get an Asset-Based Loan
There are many financial companies that offer this type of funding, including many banks and independent finance companies. You need to take the time and find out which companies are likely to offer funds to younger companies. Most lenders in the field of asset-based loans prefer making larger loans because the cost is usually the same, no matter what the size.
If you have good financial statements, common inventory, solid reporting system, and clients who typically pay their bills, your chances are pretty good for getting this type of loan. Make sure that you bring detailed, accurate information and make a case for long-term viability.
These loans can be a great source of capital for companies that are growing quickly or just need a little extra help getting through a financial difficulty or need to avoid becoming stale. These loans can also be used for funding acquisitions- if you decide that you want to buy out another company.
The chances of getting an asset-based loan are only as good as your receivables. If your customers are paying in less than 60 days and have a strong credit rating, you may be approved. If not, it is less likely that a lender will give you a second look.
Additionally, these loans do typically cost more than traditional ones. The interest rates tend to vary and banks often include “audit” fees on the cost of an asset-based loan.
If you believe that an asset-based loan is a good option for your business, call Hornet Capital Solutions today to learn more.