What is Asset-Based Financing?
The majority of Asset-Based Loans are structured to operate like either a credit line or a term loan. The actual structure is based on the underlying assets that your company can select to fund. Businesses can generally finance four kinds of commercial assets: accounts receivable, inventory, machinery, and equipment.
What are the Advantages of Asset-based financing?
- Improves cash flow by accelerating receivables cycle
- Offers funds by margining marketable business or personal assets
- Easier to get than traditional loans and lines of credit
- Increased versatility of use
- Can adapt to a growing business
- Fewer covenants
- Able to be obtained quickly in contrast to traditional institutional loans
How do Asset-Based Loans function?
Business Asset assessments are essential.
Inventory and machinery are typically funded at a portion of a liquidation recovery assessment. The amount loaned for inventory and equipment ranges from forty to sixty percent. Liquidation recovery value can frequently be substantially less than market value in a lot of situations.
Is Asset-Based Financing Right for My Business?
There are a number of factors to consider whether taking on an ABL facility makes sense for your business:
- Do you have reliable, adequate cash flow to service the cost and repayment of an asset-based loan?
- Will the assets you would like to get financing against hold sufficient value for the life of your loan?
- Should you seek financing for all your business assets, or just specific ones that are better suited for ABL financing?
- Are the business assets you would like to finance otherwise encumbered? (ie. is there a lien on them or are they already being financed?
There are of course other factors to consider in any asset-based financing discussion. The main aspect to remain mindful of is whether or not the cost of receiving cash to finance your business will help accelerate growth and, ultimately, profitability. It can be counterproductive to apply for ABL financing without considering the impact such financing would have on your overall business operations and profitability. Thus, finding the right financing partner, and balance between cost, impact on your operations and cash flow are critical to making a decision to seek ABL funding.
Asset-Based Financing Resources:
Before making an application for ABL financing, doing your homework will prove to be a good use of time in making a very important decision about how you choose to fund your business. Below are some resources to help you make your decision: