Loans are incredibly useful through all stages of a small business’ lifespan. Starting a business, expanding one, purchasing another, and more all require substantial amounts of cash. Asset-based lending is an often-overlooked but potentially useful form of financing. In a variety of circumstances, it’s worth considering whether an asset-based loan is a useful option for your small business.
Multiple Options For Collateral
By taking out an asset-based loan, you effectively borrow against the value of a given asset, which could be real estate, inventory, equipment, accounts receivable, or something else. The wide variety of options for collateral ensures many points of access for an asset-based loan. Even better, so long as your asset is well-appraised and reasonably valued, you should be able to reliably access a loan.
Flexibility in Use
Because the value of an asset-based loan is based entirely on the asset in question, lenders typically allow wide latitude in use of funds. In the event you default, the asset can be seized, and so if the asset’s value is stable, you have a great deal of choice in how you spend the money.
This can be useful because it allows you to avoid the extensive documentation that may be required around other types of loans, like a term loan. You do not need to spell out how you’ll use the money up front, which can be quite useful in a fast-paced business environment, where new needs may arise regularly.
Fast Approval Process
Again, because asset-based lending is solely determined by the value of the collateral in question, you can typically access a loan far more quickly than you would other types of commercial loans. Thus, asset-based loans can be extremely useful for securing cash quickly, which is a frequent need in small business environments.
For instance, if you operate a construction business, and have an immediate need for funds, quickly securing an asset-based loan based on the value of an excavator can be a rapid route towards securing necessary funding.
In short, there are countless reasons why asset-based lending can be a great form of borrowing for a small business. While it may be more applicable in certain situations — for instance, for shorter-term cash needs — it can be an extremely useful part of a borrowing portfolio. It’s worth spending some time contemplating your business’ financial needs, and current profile, to determine whether an asset-based loan is a good choice for you.