Just as a homeowner may take out a home equity loan to pay for remodeling, a business may look into asset-based lending to help grow its business by taking out secured business financing. Asset-based lenders can help you get the best-secured business loans at the best-secured business loan rates.
What Is Asset-Based Lending?
With an asset-based loan, your business can leverage assets to liquify capital to finance company restructuring, turnarounds, acquisitions, and growth within the company. With asset-based lending, you can typically borrow a more substantial amount under the ABL facility for a secured business line of credit rather than the limited funding set by a typical credit line.
If an asset-based loan is unpaid, then the asset - the business in this case - can be taken. You are leveraging your company to secure funds for whatever growth and change your business will be going through.
There are various commercial loan types, depending on the size and revenue of your company.
Secured Business Financing for Better Loan Terms
When you apply for secured business financing, there are various terms and interest rates based on the lending company you get the loan from, as well as your factors based on your business. Interest rates can vary between 5.25% - 15%, depending on some of the following factors:
- Your company’s previous payment history with clients
- Quality and quantity of your client base
- How profitable your company is
- How often your inventory moves
- Quality and age of the company’s equipment and machinery
- Payment term duration- 30, 60, or 90 days
- The recent appraisal of your company’s property value
- The company’s credit score and payment history to vendors
An asset-based loan helps secure financing. A lender will not secure a loan on unsecured financing because if you defaulted on the payment, they would not be able to recoup their losses.
What Is Required to Apply for Asset-Based Lending?
Various types of collateral can apply toward asset-based lending, all dependant upon the type of Some examples of asset-based lending is as follows:
A service-based business that created invoices for its customers can apply any receivables due within a 30 - 90 day time period as collateral to obtain an asset-based loan. The size of your business will impact this as the more you invoice, the greater amount of money you can borrow.
When you use asset-based loans that apply unpaid invoices as collateral, the lending company purchases the outstanding invoices to collect the payments from customers for a flat amount; this is called invoice financing.
Invoice factoring is different in that it means you are selling control of your company’s accounts receivable outright or in part. The customer pays the factory company, which then chases payments of invoices, if necessary. The factoring company then takes the remaining invoice and pays you, minus their fee, once the invoice is paid.
Any company that runs a retail, wholesale, or manufacturing business will undoubtedly have plenty of inventory. In the case of sufficient inventory, it can be used as collateral to secure asset-based loans.
The lender will take inventory of all of your stored products and merchandise, determine the value and then offer a loan depending on the value to determine the resale. You are then able to take a loan out depending on the appraised value of the inventory.
You can take out a loan as determined by the inventory in your warehouse as you need. If you do not keep up with the payment arrangements made, the asset-based lender has the right to inventory as repayment for the debt you owe.
Equipment or Machinery
You can use any vehicles, commercial kitchen appliances, equipment used in manufacturing, computer systems, or any other valuable machinery that your business owns toward collateral for your asset-based loan.
The value of your business’ equipment will determine the value of the loan you can take out. Before you consider using machinery or equipment for collateral, you must own it outright so that the lending company can collect it as collateral if you do not repay the loan, much in the same way that you couldn’t use a rented home as collateral for a home equity loan.
Any land or retail space that is owned may be used as collateral for an asset-based loan. Retail space can come with many factors and legal nuances, so they are considered on an individual basis.
If you consider your business space as collateral, you need to get it appraised by an independent party to determine the value before going to a lender. You also need to consider if you have paid off a portion or have equity in the mortgage so that a lender can get their money back if need be. In most cases, the land must be paid off considerably or owned outright.
Deciding What Assets You Can Use to Get Secured Financing
Property is considered the most reliable collateral to obtain a secured business loan, but there are other options available to you. These include:
- Business inventory
- Equipment and machinery (tractors, industry-grade appliances, factory machines)
- Credit card transactions
- Accounts receivable
Applying for Asset-Based Financing
The specialized team at ROK Financial can help businesses by offering financing solutions to business owners in a positive way through asset-based financing. Providing financing through a team of experts helps create opportunities for business owners trying to create new opportunities for their company, rebrand, or expand.
At ROK Financial, we pride ourselves in helping businesses grow and in creating solid business opportunities as well as a trusted financial partner. Call us today for more information on what we can do to help your business grow through asset-based lending.
If you need assistance with various types of asset-based financing, call ROK financial to see what our team of dedicated professionals can do to help grow your business and help you realize your goals.
About the Author, Madison Taylor
Madison Taylor is the Brand Ambassador at ROK Financial. She is responsible for raising brand awareness and business relationships with business owners across the country. Madison loves that she plays a small role in getting Business Back To Business Through Simple Business Financing and looks forward to hearing what you think about the blogs she creates!Madison has been working in the financial space for six years, and loves it! When she is not at work, you will find her at home learning a new recipe to test out on her family or going on new adventures with her friends.