There are times when businesses need to stimulate their cash flow. The problem is often that it is not always obvious what choices will facilitate the most significant gains.

Many business owners often think that a traditional loan from a source like a bank is the only option. Another option that often gets overlooked is using the company’s assets for a different kind of lending.

Understanding the Basics of Asset Based Lending

With a more traditional loan, businesses often get a loan amount based on factors such as their time in business and their credit score. For any business that does not rank highly in either category, getting a loan can be difficult. 

In contrast, a loan based on assets uses your assets’ value to determine your loan amount and rate. This difference makes it a fantastic way for various businesses that could not otherwise qualify for loans to get financing.

Some of the Items That You Can Use as Collateral in Asset Based Lending

One of the perks of using this type of financing is the wider array of assets that a company can use to secure a loan. For example, certain borrowers would love to give you a loan based on assets such as unpaid invoices from creditors and clients. 

This type of lending, often referred to as factoring, is a quite flexible service allowing companies to increase cash flow on an as-needed basis. Companies can also use more traditional assets such as equipment on hand or real estate they own.

When companies use this type of financing that they have the flexibility to decide which of their assets offers them the most bang for their buck. This flexibility also allows companies to tailor the specific amount of funding they receive based on their needs.

Some of the Pros and Cons of Asset Based Lending

One of the greatest benefits of this type of lending is that it allows companies to access capital at a time when their budgets are constrained. This opportunity could be a great benefit when your company has major expenses coming up like payroll or has a need to invest in the future of their business.

The downside of this type of financing is that it can often come with higher interest rates or several fees. That makes it incumbent upon businesses to make sure they can handle the higher costs of this type of financing before they decide to move forward.

Asset-based lending offers very flexible financing options for companies. This type of lending can be a great alternative for smaller companies or those who quickly need cash.