Understanding Asset Based Lending

Do you have a great idea for a start-up company, but you simply don’t have the funds to open a business? Or maybe you have already started your own business but you have recently come across tough times financially and you need a little extra help to make it through your current fiscal slump. If you don’t have a strong enough credit history to secure a large loan from a traditional lending institution, then you may feel like owning a successful business is nothing more than an unachievable dream. However, some lending institutions, such as Prime Commercial lending, offer asset based lending, which may be the perfect option for struggling start-up companies. Here are a few things you should know about this type of lending and how it can help you.

How It Works

Just as the name suggests, asset based loans are based on a company’s assets rather than its credit ratings and history. Companies that seek asset based loans typically put their inventory, machinery, and accounts receivable on the line in order to receive immediate funds from a lending institution. Companies that offer asset based lending usually advance a pre-determined percentage of the company’s asset value, which is typically 70 – 80 percent of the company’s accounts receivables and approximately 50 percent of their inventory.

In order to grow a new company until it becomes profitable, it is often necessary to take on debt initially. Then, once the company has grown and started to become profitable, the owners should be able to pay back their loan rather quickly. As with any debt, there is a risk involved with asset based lending, because if you are unable to repay your debt you will lose all of the company assets that you have put on the line. This is a risk that many start-ups are willing to take if it means receiving immediate funds to help their company have the greatest chance of succeeding.

How to Get It

Asset based loans aren’t offered by every lending institution, so you will need to locate an institution that will offer this type of loan. If you are a small business, you will need to find a lender that will offer an asset based loan to a small company that doesn’t have much of a track record or credit history. If you keep good financial statements, sell your inventory often, and pay your bills on time, you shouldn’t have a difficult time securing asset based lending.

If you are thinking about getting an asset based loan for your business, make sure you understand all of the pros and cons so that you can make an informed and responsible decision for your company.

See more benefits of Prime’s Asset Based Lending program!

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