Asset-Based Loans: What You Should Know

Countless businesses make their fortune by selling inventory to generate a profit. However, did you know that you can also leverage your inventory to get a loan if it’s not selling fast enough? Asset-based lending is a crucial financing resource for small and growing businesses and is worth learning more about if you’re an owner looking to help your venture thrive in a challenging modern market.

What Is Asset-Based Lending?

Simply put, you use your business assets (often your inventory) to leverage against a loan in order to gain instant access to crucial cash flow for your business. It gives you faster access to cash and ensures you’re able to meet your financial responsibilities as they arise if you’re not selling your inventory quickly enough.

What Are the Benefits of This Type of Financing?

Asset-based loans are a time-tested and popular option among business owners for a reason. This arrangement offers owners an array of benefits including:

  • Immediate access to cash flow
  • Better overall business stability
  • Lower interest rates

Who Provides These Sorts of Loans?

These loans are actually quite similar to mortgages or other loans that use collateral as risk management on the part of the lender. Therefore, banks and other lending institutions often provide business owners with access to these loans.

Is It Difficult to Get Approved for an Asset-Based Loan?

The application process and requirements vary between lending institutions. In a difficult modern market, it may be difficult to get the financing you need. However, by maintaining a high business credit score, ensuring you have a solid spending plan in place for your loan, and showing promptness and attention to detail in your application, you can significantly improve your chances of approval.

Do Asset-Based Loans Come With Interest?

Yes. As previously stated, this loan isn’t very different from any other type of loan. Therefore, you should expect monthly interest charges along with a few select other fees. However, because you have secured this loan with your inventory assets, your interest should be considerably lower than other financing options.

Will the Bank Take Leveraged Inventory of You Default on the Loan?

Yes. Your inventory is the asset you’ve leveraged for your loan, and thus it serves as your collateral. If you fail to pay your loan according to your lender’s terms, they have the right to seize your inventory and use it to mitigate their own investment losses.

Asset-based lending is an excellent option for retail and manufacturing businesses of all types. Learn more about this financing option and how it can help your business and how you can apply to secure a loan of your own.