What Is Asset Based Lending Winston Rowe & Associates
Asset-based lending is a business loan secured by collateral. The asset-based loan, or line of credit, is secured by inventory, accounts receivable, equipment, or other balance-sheet assets.
By: Winston Rowe & Associates
Simply put, asset-based loans are based on assets, generally accounts receivable and inventory, which are used as collateral. You're putting your future revenue on the line to gain access to money right now.
Asset-based lenders will advance funds based on an agreed percentage of the secured assets' value.
The loan to value (LTV) is generally 70 percent to 80 percent of eligible receivables and 50 percent of finished inventory.
The range of financial service companies that offer asset-backed lending is huge. From traditional retail banks and credit unions to secondary market private capital lenders.
For a small business, the key is to find the lenders that are willing to offer lines of credit to younger companies.
Securing an asset-based loan should be comparatively easy if your company has good financial statements, good reporting systems, commonly sold inventory, and, finally, customers who have a track record of paying their bills.
To secure an asset-based loan come to the table with financial information that is detailed and accurate. The key is to make the lender comfortable with a credible case for long-term viability, as well as professionally-
The loans are especially well-suited for manufacturers, distributors and service companies with a leveraged balance sheet whose seasonal needs and industry cycles often hamper their cash flow. Asset-based loans can also be used to finance acquisitions.
Asset-based loans also cost more than traditional loans. Interest rates greatly vary, and banks will sometimes include additional "audit" and due diligence fees to the overall cost of an asset-based loan.
Larger banks might also require your personal guarantee, as well as the assumption of your other banking relationships.
Winston Rowe & Associates prepared this article. They are a no upfront fee commercial real estate due diligence and consulting firm.
You can contact them at 248-246-2243 or visit them online at http://www.winstonrowe.com