Commercial finance lenders provide asset based lending by using the collateral from the companies assets to secure the loan. Most businesses use their inventory and accounts receivables to secure asset based lending and acquire money they need now to help generate a stronger cash flow. The money you acquire from asset based lending can be used for other things like purchasing equipment, raw goods, and other things.
What companies seek asset based lending? Just about every type of business can use asset based lending. The companies that typically seek asset based lending are rapidly growing companies or companies that are in the midst of a turnaround or other things. Asset based financing is not for everyone and lenders are only going to offer it to companies that have proven accounts receivables. Your business credit rating will help you acquire the financing you need for your business. You must have a strong track record of turning over your inventory and by generating a strong customer base. As long as you have customers that continue to come back for more and you have a business that is sustainable, you will easily be able to acquire asset based lending.
Asset based lending companies usually do not offer loans that are higher than $500K. The money id out there for your business but you need to do the hard work and make sure you can acquire it by offering the lender the right type of information they want. What does the lender want? The lender wants to see financial information for your business. They will look for your recent cash flow statements and at least a years worth of financial records to show that you have a sustainable customer audience.
Asset based lending is great but you do need to be aware that you will pay a higher interest rate on the loans. You must proceed with caution as these interest rates can climb upwards of 12-28%. Compared to a traditional loan or a line of credit, the interest is more than double and it can make it challenging for your business to come up with the money to pay for the interest charges alone. Shop around with multiple asset based lenders to find one that can offer you the best loan terms so you aren't stuck with an incredibly high interest rate.
The upside to asset based lending is that it is easy to acquire compared to other types of lending. These loans are pretty easy to get as long as you have the financial statements to hand over to the lender. To help the lender see that you have strong financial records, show them your tracking system. Do you use QuickBooks or another program that tracks your accounts and also provides information pertaining to your inventory? The more information you can offer to the lender, the lower risk you will be to them and it will be much easier for you to acquire the loan you need for your business.
So what makes up your cash flow? The lender will need to see the product you sell and the process of how you sell it. How are you marketing the product to the customer and how does it pass from your hands to their hands? How soon do you collect the money from the customers? Do you have the money from the customer in less than 45 days? As long as you have a good procedure for collecting the money from your customers, you will have an easier time showing lenders that you are worthy of the loan and they will actually offer you the financing you need for your business.
Corporate Credit Concepts specializes in asset based lending. For more information about asset based lending and how it might benefit your business, please CLICK HERE for a free phone consultation.