What is Asset Based Lending and how can it Help Grow your Business?

Posted on: October 13th, 2016

Asset-based lending depends on using assets, such as inventory and accounts receivable, as collateral to receive funding. In simple terms, a company takes a loan against the collateral value of its hard assets.

Asset based lenders use advance rates against the collateral value of the assets to make the loan. The advance rate is usually 80% for receivables and 45% for inventory.

This type of loan is relatively easy to bring in and can be provided by either a bank or finance company.

Asset based lending helps businesses grow because they:

Increase Capital Strength

Companies need capital to grow and to operate their businesses on an efficient basis. Often, new sales creates the need for greater liquidity.

Business expansion also requires upfront capital and the ability to support higher expense levels. An asset based line of credit can provide funding for both of these scenarios.

An asset based line of credit can also help a company more efficiently manage the peaks and valleys of its cash flow.

Are Widely Available

There are many forms of asset based lenders – banks, SBA lenders, finance companies, factors who all operate under the same general credit philosophy. They require assets as collateral for their loans.

They are less sensitive to the level of profit or the directional trend of the business. As long as they can verify the integrity of the asset values, they are usually in a position to provide a loan. Asset based lenders have

Promote Company Growth

If your company is growing quickly, more cash flow is consumed by your working capital cycle. This can often lead to a growth gap, wherein liquidity can be stretched.

An asset based line of credit is a flexible way to fund the growth gap and ensure that bills get paid on time. It is a cost effective way to fund acquisitions and new market expansion.

Through leveraging assets that you own free and clear, you are unlocking the borrowing capacity of your balance sheet. This is almost always less expensive than bringing in more expensive forms of loans such as term loans or mezzanine loans.

The cash infusion provided by the asset based loan, can fund your growth plan be it organic or acquisition growth. Attract Capital offers a number of funding solutions.

These solutions result in the best loan structures and quicker closings. Pay their website for more information and get the funding that your business needs!

In the acquisition financing arena, capital availability is destiny as companies require reliable access to capital to grow over the long term. Unforeseen capital needs usually arise when acquirers least expect it. This can cause some concern for the acquisition financing provider, especially when covenants tighten up and that working capital availability is utilized faster than expected.

Mezzanine debt borrowing is usually a straightforward activity that many companies use for funding of transitional growth. Mezzanine debt lenders are highly transparent about their due diligence approach and their post-closing loan management making it easy for companies to engage with.

Elections have consequences and positive ones at that for the acquisition financing middle market. While much media attention is paid to the direction of the yield curve and the Fed’s likely rate cuts, scant attention is paid to the more important drivers of the acquisition financing market – business psychology and regulatory climate.