All About Asset Based Loans!
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Transcript of All About Asset Based Loans!
The Ins and Outs of Asset-Based Loans
What it is:
Asset-based loans are based on assets, generally accounts receivable and inventory, that are used as collateral. You're putting your future revenue on the line to gain access to money right now.
What it is:
Asset-based lenders will advance funds based on an agreed percentage of the secured assets' value. The percentage is generally 70 percent to 80 percent of eligible receivables and 50 percent of finished inventory.
How to get it:
The range of financial service companies that offer asset-backed lending is huge. The Commercial Finance Association’s membership includes banks and many independent finance companies.
How to get it:
For a small business, the key is to find the lenders that are willing to offer lines of credit to younger companies. This can be tricky, and could involve some asking around. Asset-based lenders would prefer to make larger loans because the cost to monitor an asset-based loan is generally the same whether it's large or small.
How to get it:
To secure an asset-based loan come to the table with financial information that is detailed and accurate. The key is to make the lender comfortable with a credible case for long-term viability, as well as professionally-prepared financial statements that prove you have a handle on the business.
Upside of Asset Based Loans:
Asset-based loans can be a much-needed source of capital for companies that are rapidly growing, highly leveraged, in the midst of a turnaround or undercapitalized. Sometimes a company simply needs that infusion of cash to get over a financial hump or prevent growth from stalling out.
Upside of Asset Based Loans:
The loans are especially well-suited for manufacturers, distributors and service companies with a leveraged balance sheet whose seasonal needs and industry cycles often hamper their cash flow. Asset-based loans can also be used to finance acquisitions.
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