Understanding the Basics of Asset-Based Lending

Asset-based loans are something that is gaining considerable popularity across industries today. This is a very conventional and convenient alternative to traditional bank loans. You will be awarded flexible financing availability and your cash flow shortages can be met easily. Your growth goals can also be easily achieved. But in this article, we will elaborate more on this financing option to help you understand if this is best for you.

What is it?

The most popular form of financing that businesses rely on to acquire is asset-based lending. This is a form that helps you to securely take loans for lines of businesses that have a revolving line of credit and that use your business assets as your collateral. This mode of financing stands out from the rest because the lenders can make their financing determination based on how strong your assets in hand can be. Your business strength is secondary. In contrast to the bank financing methods or the traditional loans, this is much easier to secure.

What are its advantages?

There is a variety of appealing advantages that this financing model can give you like:

  • Immediate improvement of the business’ cash flow.
  • Offers business flexibility.
  • You can easily achieve corporate turnarounds.
  • It is easily acquirable compared to other finances.
  • They do not contain much of the covenants.
  • They are arguably a lot cheaper than other comparable solutions.

How is a transaction structured here?

Revolving lines of credit are what the transaction structures are based upon. The borrowing base of your collaterals determines the size of the line of funds. And this is entirely based on your eligible assets which include the accounts receivables, machinery, property, and even inventory.

You are not entitled to give away 100% of your inventory to the borrower. They instead look forward to putting limits on the types of the asset in the discussion. It can be in a range of 80-85%. But when liquidity is considered, the borrowing limit is kept around 50%. The quality of the asset also determines this limit.

The financing request can only be submitted after the borrowing base has been determined. The financers then process the request to remit the funds. This is how you get instant funds without hassles.

Accord asset-based lending also works on similar principles and ensures to disburse your funds at the earliest.