Asset Based Lending vs. Bank Financing
The business world of today is immensely competitive and fast-growing. Industries are becoming saturated with the eruption of new businesses that offer almost the same services as the competitors. The differentiation factors can be incredibly minor; as long as they benefit the customers. As a result, maintaining that competitive edge while aiming for company growth as well can be difficult. It won’t be surprising that businesses fall behind on their cash flow.
When the funds become short but the business growth is looking upwards, business owners are likely to take their chance at loans. Loans steady the cash flow and depending on what type of loan was taken, they can be rapid in different ways.
Apart from the traditional bank financing, there are many other ways of obtaining loans. One of them is the asset based lending. businesses that are uncapitalised but have steady accounts receivables are ideal candidates for asset based lending. This type of loan works effectively for manufacturers, service companies, and distributors.
Understanding Asset Based Lending
Asset based lending deals with loans that are secured by the assets of a company; as it is quite obvious from the name. These assets may include accounts receivables, inventory, and equipment. Individuals who do the lending, in this case,depend on the value of the collateral in order to reduce the credit risk of the loan. These lenders are often called secured lenders as well.
Asset Based Lending Compared to Bank Financing
There is one primary difference between asset based lending and the traditional bank financing. When traditional bank lenders underwrite a loan, they look atthe cash flow first. In comparisonasset based lenders look at collateral first.
In back financing, the collateral control isminimied since they are not the main source of repayment. However, there will be more financial covenants. As a result, many companies prefer asset based lending despite being eligible for bank financing. The reason is that they enjoy more flexibility this way. This type of loan will be typically taken on by companies that are asset prone. Therefore, they can completely rely on the value of their assets to ensure loan payback. They have no worries about making predictions about a steady cash flow. Hence, they remain at ease as compared to the situation they could have faced with bank financing.
Here are a few morereasons as to why companies may choose asset based lending instead of traditional bank loans:
No Need to Clear the Accounts
Banks require borrowers to have their balcne summed to zero once every year. This requires company taking loans to clean up their accounts and verify the balance a zero. Asset based lending saves borrowers from this hassle. The credit lines with this type of the loan are open despite the value of the accounts.
Save the Collateral
In traditional bank financing, the borrowers will be asked for a high amount ofcollateral. This means that businessorganizations will have to give as much amount of collateral as the amount they would like to receiveasa loan. In asset based lending, there is no such compromise. The advance percentages are higher compared to what banks offer. This means that your business can save their collateral to a greaterextent.
No Worries of Disqualification
Bank financing can involve a lot of intricacies. You have to constantly keep up with theirvarious regulations in order to stay eligible for the loans. The banks are supposed to conduct reviews where they validate f your lines of credit meet their specifications. It can be incredibly frustrating to be kicked off the loan list if you fail to fit in one of the reviews. asset based lendingeliminates this problem. With no reviewshanging on your head, you can be assured of receiving the loan amount as you need it.
No Personal Credit Checking
Asset based lenders are merely concerned with the value of the collateral. Unlike bank financing, there is no checking for a history of credit score that applies to the principals involved. This is quite convenient for many business owners. They can easily get a loan that is simply connected to the assets of the company and does not depend on the personal credit lines.
Cash Flow Flexibility
Asset based lending allows a lot of flexibility to the borrowers. One of the biggest advantages is that business owners can still manage their cash flow without any restriction. In case of bank financing, a lump sum is provided at closing and a fixed amount of paymentstobe made everymonth depending on what was decided in the originalloan agreement. On the other hand, asset based lending requires paying only for what you use.
In today’sbusiness world, one can’t compromise on the productivity of the day to day operations. With asset based lending, companies can enjoy a steady funding with quite fewer restrictions as compared to bank financing.
The process for qualifying for bank loan also involves a lot of steps. In asset based lending, your company’s assets are readily available to be used as collaterals. Another benefit is the fact that personal assets of the business owners can also be used as the collateral. But the credit line of the company will still be determined based on the collective worth of the assets.
Advanced Funding Group
The small business industry is as competitive and saturated as the business giants. Many of the small businesses are growing fast given how new technologies and latest business trends are allowing them to share the limelight. This fast growth does not have to make your business run out of cash. At Advanced Group Funding, we cater specifically to the loan needs of small businesses. We offer asset based lending based on your account receivables as the collateral.
If you own a small business that has well-established account receivables, then you can qualify for asset based lending. Steady your cash flow today with our flexible loan services. Make a call to learn more.
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