How Asset Based Business Loans Can Help You Grow Your Small Business

How Asset Based Business Loans Can Help You Grow Your Small Business

An asset-based loan is one where you offer the value of your accounts receivable or inventory as collateral in case you default on the loan. Although it varies by lender, the typical loan limits are approximately 50 percent of the value of your inventory and 75 to 85 percent of the value of your accounts receivable.   

Some business owners find that an asset-based loan is not flexible enough to meet their needs. This is due to the limits on the loan itself and the fact that they receive a one-time lump sum rather than having revolving credit as they would with a business credit card or line of credit. However, others find that an asset-based loan works well for them. If you’re considering applying for one, read on for what you need to know.

Other Types of Assets You Can Use for Collateral

Besides accounts receivable or inventory, some lenders might accept a valuable piece of business equipment or a real estate holding as collateral to secure an asset-based loan. The lender will order a valuation on your collateral, which you will need to pay for as part of the loan origination fees.

Benefits and Drawbacks to Consider

The process of applying for and receiving approval for an asset-based loan is often quicker than other types of loans since you must pledge collateral. Receiving the funds can help you focus on other financial priorities or stabilize cash flow, and the loan payment should fit into your budget when it comes time to repay. Lenders typically assign lower interest rates on these types of loans to correspond to the reduced risk they have in borrowing you the money.

On the downside, you need to be comfortable with the fact that you could lose a valuable asset if you fail to make timely loan payments. You also need to consider whether the loan fees are affordable, and whether the loan limits meet your financial needs.

Green Apple Funding offers several types of flexible financing options for small business owners. Please contact us to learn more.