Over the years, asset-based lending has grown in popularity. Asset-based lending is whereby a company takes out a loan and secures it with an asset. It is a standard lending option for companies with cash-flow problems. These assets can only be tied to that loan and cannot be used anywhere else as collateral.
In this article, we will look at the various advantages of seeking an asset based lending option.
Let us dive into details.
Easier to get funding
Asset-based lending is always welcomed with many entrepreneurs’ sigh of relief since it is easier to access. Unlike business loans that involve a very intuitive and complicated process, with asset-based funding, a business only needs to show proof that it is financially stable, profitable, and has valuable assets that can be leveraged if the company cannot make loan payments.
Apart from having assets, during an assessment of whether a company qualifies for a loan or not, an entrepreneur can bring copies of account receivables. This is money that is easily accessible. As such, it increases the likelihood of getting a loan.
Additionally, unlike other financing options where your company’s financial muscle needs to undergo a rigorous vetting process and takes too long to get approval, asset-based financing options are much quicker. Instead of getting a loan in several weeks or months, entrepreneurs seeking asset-based lending can have the money they need in a couple of days.
- It is flexible
Some lending options have total control over how you spend the money given to you. However, with asset-based lending, the company controls what they want to do with the money. Once the money is disbursed, the lender does not scrutinize how the money is spent, as long as payments are made on time.
Additionally, when it comes to the amount of money to borrow, borrowers with more valuable assets can ask for higher loans. Also, companies have the flexibility to top-up a pre-existing loan if they have a good credit score and assets.
- Lower interest rates
Some financiers offer asset-based lending at a slightly lower interest rate. Considering that a loan is payable for several years, a slight decrease in interest rates goes a long way in easing the company’s financial burden in the long run, which positively affects its bottom line.
- Fewer rules and regulations
All loans come with a contractual agreement that clearly states each of the parties’ duties and responsibilities. These rules and regulations are to safeguard the interests of both parties. However, in conventional credit lines, these agreements were stricter to the borrower, making it harder o stay in compliance.
On the other hand, with asset-based lending, the contracts are less strict, allowing the borrower to enjoy making payments. Also, this allows a borrower to remain in compliance with the agreement. By not breaching the contract, borrowers can pay the loan on time, which improves their credibility and will enable them to qualify for higher credit lines later on in the future when the need arises.