Asset-based lending is a form of financing which is supported by collateral or some kind of tangible asset, often in the form of machinery, inventory, or Accounts Receivable. When a business owner attempts to secure an asset-based loan, he/she can typically get an amount equal to 75% or 85% of Accounts Receivable, and something in the neighborhood of 50% of equipment or inventory. It’s much easier to qualify for an asset-based loan because there is greater security for the lender since they can always seize and sell the asset in order to recover their loss. Here’s how asset-based lending works in actual life circumstances.
How it Works
In practice, there are two different types of asset-based loans, being business lines of credit and the standard business term loan. With either of these types of loans, an online lender would advance a sum of money to a small business owner which is based on the current market value of the assets intended to secure the loan.
The best assets to use for these types of loans are those which can be quickly converted into cash because that will be the least amount of hassle for the lender in the event of a default. When the asset-based loan is a term loan, the borrower would be obliged to repay the amount loaned, as well as interest, over a fixed amount of time agreed upon between the two parties.
In the case of a line of credit, the borrower would be able to draw on that line of credit whenever there was a business need, and it would only be necessary to pay interest on the amount which was withdrawn. With either of these types of loans, the financing would be secured by the assets put up by the small business owner.
If the borrower failed to repay the loan, the lender would then have the option to seize the asset and sell it on the open market to recover the loan amount. Many small business owners see seek out asset-based loans to relieve cash flow constraints and to obtain working capital for business growth. Asset-based loans are a real possibility for small business owners when they don’t qualify for other types of loans with traditional lenders.
Interested in an Asset-Based Loan?
If so, we may be able to provide the financial assistance you need for your small business. Contact us at Hornet Capital Solutions, so we can discuss some options that might be available to you.