What Is An Asset-Based Loan?

2 years ago

To navigate the cut-throat financial landscape of running a company, business owners need access to reliable, fast, and flexible lending solutions. Traditional bank loans have a mountain of qualification criteria to overcome, meaning many businesses (especially startups and small businesses) struggle to qualify. There are numerous useful alternatives to traditional lending, one being asset-based lending. Learn about what an asset-based loan is and how this type of secured loan may be easier to qualify for.

What Is An Asset-Based Loan?

An asset-based loan is a line of credit secured by collateral. Asset-based loans are sometimes referred to as secured loans or asset-based financing. These funding solutions allow companies to obtain a line of credit by leveraging their business assets as collateral. The collateral to secure asset-based loans can be inventory, equipment, real estate, and accounts receivable.

With this flexible financing solution, your business will have the cash flow necessary to cover pressing needs such as everyday expenses, payroll, purchasing inventory, purchasing equipment, acquisitions, and even business expansion.

Benefits of Asset-Based Lending

Qualifying is quick and easy – ABL lenders are more concerned with the security your valuable assets provide than your past cash flow, personal credit score, business credit history, or your company profitability – making them easier and faster to qualify for than traditional loans.

ABL is flexible – Asset-based lending options offer flexible lending terms and payment plans to suit a variety of business needs. Often structured as a line of credit, you can take out only the cash you need when you need it and only pay interest on the funds you draw.

Focuses on business assets – ABL programs are designed specifically for business owners and focus on business assets. Generally speaking, it is a personal guaranty requirement that is unsecured.

Asset-based loans generally have a lower interest rate than similar funding options.

Who Qualifies for Asset-Based Loans

Asset-based loans have minimal qualification requirements. Depending on the lender, collateral can be almost any kind of business asset. This includes equipment, invoices, and marketable securities.

The revenue requirements may vary from one lender to another, but generally, they are minimal, especially compared to the revenue requirements for unsecured loans. You can even qualify if you don’t have a strong credit score.

Traditional lenders often look at time in business as a qualification checkpoint, with a two-year minimum as the general standard. However, younger businesses that have been operational for as little as one year can get an asset-based loan.

Are Asset-Based Loans Right for Your Business?

Sometimes, businesses just need an infusion of cash to navigate a tough financial period or prevent their growth from stalling. Asset-based loans are a lifeline when a company is rapidly growing or highly leveraged. They can also help an under-capitalized company or one undergoing a turnaround.

Kore Capital Corporation specializes in providing short-term capital to small businesses. To find out more about how asset-based lending works or to discuss the best financing option for your business, contact us today!