Many small and medium-sized businesses rely on credit. While many lenders prefer to see that borrowers have the cash flow to pay back a business loan, this may be difficult if you’re planning on making investments that will increase revenue in the future. Fortunately, asset-based lending is often an ideal solution, allowing businesses with low liquidity access to the credit they need to make payroll, reorganize the business, or take advantage of new opportunities.
A Brief Guide to Asset-Based Lending
Using Business Property as Collateral
Unlike typical unsecured business loans, asset-based lending requires borrowers to use business property as collateral. Many lenders will accept a variety of valuable assets, including accounts receivable, marketable securities, business equipment, or even intellectual property rights. If the borrower defaults on the loan, the lender gains control of the assets, liquidating them to cover the outstanding balance.
Determining Borrowing Limits
In asset-based lending, the amount offered is based on the worth of the collateral, but will never equal its full value. Generally, lenders consider how difficult the asset is to liquidate, and adjust their offer based on the effort involved in recovering the loan. For instance, accounts receivable, securities, and other easily liquified assets may result in loan offers of up to 85% of their value, while lenders may only offer 50% of the value of real estate or manufacturing equipment.
Obtaining Lower Interest Rates
Securing a business loan with valuable collateral lowers the lender’s risk, typically resulting in a reduced interest rate. Typically, asset-based lenders charge between 7% to 17% interest, depending on the borrower’s credit history, the amount of the loan, and current market conditions.
When traditional lenders are unable to help, K-WAM Financial Solutions provides the business loans and reliable funding you need to keep your company growing. Their team in Jacksonville, FL, partners with a variety of banks, credit unions, and other lenders to fund businesses in a broad range of industries. Visit their website for more on their asset-based lending programs, or call (904) 220-2567 now to speak with an experienced loan specialist.