Why Businesses are Turning to Asset Based Lending
Small business loans have been providing young companies with capital for years. As the economy recovers and money lending returns to force, however, alternative lending options are becoming more and more popular. With standard bank loans being harder to obtain and not always convenient for small business owners, asset based lending is now one of the preferred options for entrepreneurs seeking cash. The loans fund more quickly and often have lower interest rates, making them ideal for startups and growing companies.
Your typical loan requires excessive background checking and processing time, forcing the borrower to wait for months before getting access to the money. Business owners looking to hire more employees and immediately increase output can’t afford to wait that long. In order to get speedy access to capital, the lender needs some sort of assurance that they won’t get burned by paying quickly.
This is where asset based lending can be so beneficial for business owners. By offering some form of collateral, a company looking for a quick rush of cash can ensure at least some form of repayment to the lender. This guarantee allows for the expedited processing growing businesses need. Since the loan is meant to cover a short-term expense, the money can be made available with relative immediacy.
Low Interest Rates
While loans based on personal credit with longer terms might come with fairly high interest rates, the terms of these loans vary greatly. A high interest rate is less of a concern when the borrower is already putting up a large percentage of accounts receivable. With the shortened repayment period, interest rates really aren’t the target of any company that practices asset based lending. As long as your business has a strategy for turning borrowed money into profit that can be used to settle up the outstanding balance, interest and harsh loan terms won’t be a huge concern.
Cover Working Capital
Many businesses struggle to cover basic overhead costs when trying to put money towards expansion. A short-term loan can ease the stress of paying bills for a few months while still growing the company. Businesses with good financial records and solid inventory movement can put up assets as collateral to keep growth from stagnating while still covering all essential costs.
Asset based lending has become popular in the business world for a number of reasons, not the least of which is the speedy distribution of funds and the reasonable interest rates. While not necessarily right for every business, these loans provide many companies with easy access to much needed capital.