In recent years, asset-based loans have become quite popular. They offer several advantages that you’d expect with similar products, such as a line of credit. That being said, it’s a lot easier to qualify for an asset-based loan. Below, we’ll explain the six most important benefits associated with asset-based loans.
7 Advantages of Asset-Based Loans
Below are the top 7 advantages of asset-based loans:
The biggest advantage of asset-based loans is that it improves your liquidity. When sued properly, it provides you with predictable cash flow and financial stability. This can provide stability for companies that have seasonal revenues, are growing, or have cash flow issues.
Easier to Get Than a Loan or Line of Credit
It is a lot easier to qualify for an asset-based loan than for a traditional business loan or line of credit. The qualifications include reasonable financial controls, a short record of profitability, and assets that can be leveraged.
Accounts receivable are the easiest asset to use for asset-based lending. Invoices from clients who pay within 70 days are ideal because they are easy to convert to cash. In addition, you can use equipment and inventory as collateral.
Asset-based financing is more flexible than other forms of financing. In most cases, there are very few restrictions on how the money can be spent- as long as it’s spent on the business.
This financing line is tied to the value of your collateral. Therefore, it can be increased as your sales grow and increases are typically approved quickly. You will not need to undergo the underwriting process again. This is beneficial for companies that are growing quickly and need funding.
As long as your company meets the qualification criteria, you can quickly obtain an asset-based loan. The process is a lot faster than qualifying for a conventional line of credit or loan. The process can typically be completed in about 2 weeks if the business is profitable and has financial controls in place. If you have a more complex situation, such as a turnaround, it may take longer.
There are fewer covenants associated with an asset-based loan than conventional lines of credit. Additionally, it’s much easier to manage the line and remain in compliance.
Can Be Used to Transition to Other Products
Typically, companies use asset-based lending when they are growing. They have outgrown factoring but don’t qualify for conventional loans/credit lines.
An asset-based loan allows you to build/improve your history with a lender as your business grows. Once you have established a strong track record, you can transition to a less expensive option.
Costs Less than Comparable Solutions
Many asset-based lending options cost less than alternatives such as factoring. This is an obvious advantage, as the savings go right to the bottom line.
Will Asset-Based Lending Help Your Business?
If you need financing for your business and believe that asset-based lending might be an option, contact Point High Finance. We can help you determine what your best options are and get you started with asset-based lending today.