What is Asset Based Lending? Learn How to Apply for an ABL

Posted at February 4, 2020 » By : » Categories : Business Funding »
what is asset based lending

Each year, more than 627,000 new small businesses open their doors in the United States. No matter what industry they’re in, they all have one thing in common: they need cash to grow and reach new levels of success.

Though traditional business loans are always an option, they’re not ideal for some borrowers. Worse, new businesses often find it hard to qualify for those loans in the first place! This means you’ll have to look into alternatives to get the money you need.

Maybe you’re wondering, what is asset based lending? Asset based lending is one of the best business loan choices for growing businesses and gives you access to funds quickly.

Here’s what you need to know about these unique types of loans.

Understanding What is Asset Based Lending

When you take out a standard business loan, lenders look at your business’s credit score, yearly revenue, profit margin and other factors when deciding whether to lend you money. This means your business needs to have a successful financial history to qualify for a loan.

For new businesses without an established financial history, this can be a major problem. Lenders often won’t take the risk with a new business. If the new business fails or if it declares bankruptcy, the lender will lose out on all the future loan payments.

The above mentioned reasons are why you need to know what is asset based lending and its benefits? Asset based lending allows you to borrow money even when you’re just starting out. Lenders let you secure the loan amount with collateral or valuable property from your business.

The collateral used to secure the asset based loan can be your inventory, equipment, accounts receivable, or even your building. If you default on the asset based loan, the lender will have the ability to take possession of the collateral in order to settle what you owe.

What Types of Businesses Use Asset Based Loans?

Businesses of all types can use asset based loans as long as they have something that can be used as collateral. When you apply for an asset based loan, the lender will let you know what types of collateral they will or will not accept.

Asset based lenders will look into your business’s financial history as well as your company’s credit score. These details are of important to them but what matters most is that you have enough collateral to secure the loan in case you default on making payments.

How Much Can You Qualify For?

Figuring out what is an asset based loan involves determining how much money you can borrow. The amount of money you can borrow through asset based lending is calculated off the value of the collateral used to secure the loan.

Keep in mind that you won’t qualify for a loan that’s worth the full amount of your collateral. Lenders still want to make money by giving you the loan and offering the full amount wouldn’t be in their best interest. Instead, you’ll typically get a set percentage of the value.

Regardless of what you qualify for, you don’t have to borrow the full amount all at once. As a general rule, only borrow as much money as you need to accomplish your goals.

Remember, you’ll still have to make monthly interest payments on the asset based loan loan. The more you borrow, the higher those interest payments will be.

If You Know What is Asset Based Lending, Then You Know the Loan is There When You Need It!

Some business loans have restrictions on how you can use them. This means you’re stuck using the funds for only those specifically approved reasons. For example, you can’t use a commercial mortgage loan to cover payroll—you can only use it to buy commercial real estate.

With asset based loans, you’re free to use the money however you need to. If you’re looking for cash flow to overcome a slow period, the loan can help you out. If you need to expand quickly to keep up with current demand, asset based loans can give you the cash you need to make it happen.

The lender usually will never restrict your usage or dictate what you can and can’t do with the funds. This makes it one of the most flexible loan options for businesses.

Asset Based Loans Won’t Increase Your Total Debt

Traditional loans impact your business’s credit score. The more debt you have, the more it hurts your score.

Since your collateral secures the asset based loans, it won’t influence your business’s total debt in the same way. This means you’ll find it easier to qualify for other types of business loans at the same time which might use different collateral as security.

They Protect You from Personal Risk

If your business’s credit score isn’t ideal or you’re just starting out, it’s not uncommon for lenders to ask for a personal guarantee. These guarantees let you use personal property or assets as collateral to help you qualify for a business loan.

For many borrowers, this means using their homes or other real estate to guarantee a loan. If you default on the loan, the lender can seize your personal property to settle the debt.

Asset based loans aren’t secured by your personal property. Instead, they only use your business’s assets as collateral. This means your personal assets will be safe, unless of course lender also required you to sign a personal guarantee.

Always Get Multiple Loan Proposals from Different Asset Based Lenders

No matter what type of loan you’re applying for, you’ll always want to get quotes from different lenders. Remember, some lenders may attach more value to certain types of collateral than others. What one lender accepts as collateral, another may not.

We are your source for applying for asset based loans. Our free 90-second application is all you need to get started. Once submitted, you’ll hear from one of our financial advisors to discuss which asset based loans might be available to you.

Once you have received several asset based loan proposals, take your time to compare them, before making a decision. You’ll want to choose a lender that accepts the type of collateral you’re willing to use and offers monthly payments you can afford.

Before you sign an agreement and accept any money, make sure you understand the terms and conditions of the loan agreement. If you have any questions, ask the lender to clarify their terms. If anything feels off or you’re not comfortable with their terms, keep looking.

Now that You Know What is Asset Based Lending, are There Better Loan Options for Your Business?

Asset based lending is a great option for businesses who need to increase their cash flow quickly. The loans get approved quicker than do other types of traditional loans and you’ll be able to use the money without any typical restrictions.

However, they’re not the only types of loans you may qualify for. Let our team help you find the right business loan for your company. Fill out a loan application today and get the money you need quickly or call us at 888-782-0348.