What Is Asset-based Lending, And Will It Help Your Business?

Securing financing for a growing business can be a daunting task, but it's good to know what options one has available, especially in today's competitive financial industry. Creating positive cash flow should be the top goal of any business. By prioritizing investments and improving day-to-day operations, a business can deliver immediate improvements to its cash flow outlook. But sometimes, tweaking operations will not be enough to improve the future cash position of the business.

Frequently, business owners are left with an overwhelming feeling that they need to find financing to support the stability of their business. But, turning to banks for a traditional business loan may not be an option. Even if a commercial loan is a possibility, it may be more strategic to evaluate and review other options available to the business.

Asset-based lending and financial services provide businesses with a variety of options to meet their short-term cash needs. This can include receivables factoring, but it also entails evaluation of current assets, inventory, and capital. Asset-based lending is becoming a popular way for businesses to obtain the cash and financing it needs to conduct daily business operations, and it can also help reallocate a business' resources more effectively. Companies that can create positive cash flow on a regular basis are maximizing their credit availability and profitability.

Asset-based loan products work for businesses in need of immediate cash, and are also ideal for those companies with less than ideal credit ratings. With an asset-based lending program, a business will agree to pledge its assets to secure a loan from a bank. It is still important to note the risks involved with this type of financial product. Since the business is responsible for using its own assets as collateral, the lending party has the right to seize those assets if the loan goes unpaid. Other forms of collateral may include machinery and equipment, real estate, and certain intangibles.

Any business that has limited inventory may choose to turn to capital assets or even their receivables. Both qualify as asset-based lending, and both will be evaluated according to their own merits. Once an effective strategy has been outlined, the business can set its sights on freeing up some valuable cash. A business that does not have enough inventory or accounts receivable invoices may choose to turn to other assets. Asset-based lending can help to improve the loan-to-value ratio of older accounts and the loan amount will vary for any inventory that has been assigned to it.

Undercapitalized businesses benefit most from asset-based lending programs, and these financing products can provide considerable advantages over the pursuit of traditional bank financing. Common industries that make frequent use of asset-based lending programs include automotive parts businesses, building suppliers, chemical and plastics companies, consumer products manufacturers, and companies that produce computer-related products. Very literally, any industry that experiences "roller coaster" style sales cycles will find that asset-based lending is a valuable service that could support the long-term growth of its business.

Disruptions in cash flow can be curtailed when a business has the ability to depend on an efficient process for turning assets into cash. With higher advance rates and an easy application process, it makes sense to pursue asset-based lending and take advantage of low prime rates in the process. Invoice factoring is an additional element of an asset-based lending program, and it involves freeing up cash through an evaluation of all pending invoices and all outstanding invoices held in the accounts receivable department. The whole concept of invoice factoring is that a company has an option to basically sell their invoices to the receivables financing company at a competitive rate, to obtain cash immediately on those invoices.

Finding a receivables finance agency can be a daunting task, but there are plenty of options available to those willing to study their options. Industries such as trucking, temporary staffing agencies, manufacturers, distributors and service providers can benefit significantly from financial services such as asset-based lending and accounts receivable factoring. Most companies will see a significant improvement to their internal cash flow within just a few days, when they opt to utilize these kinds of financial services to consolidate their accounts receivables, inventory, and other assets.

With the right factoring provider, your business can utilize the expertise of a team of experts, who can lead your business in the right direction, helping to secure the long-term viability of your business. If your business is struggling with the timing of customer payments or cash flow, then asset-based lending can offer your business some fresh opportunities to ensure you receive the funding and cash you need, when your business needs it most.

Copyright (c) 1st Commercial Credit.
Toby Seibert writes about commercial finance. 1st Commercial Credit can help you with your business growing pains, with financing rates as low as 1.59%, with no fees and no minimums. They finance invoices from $5,000 to up to $10 million with flexible approval decisions. Call 1-800-450-9653 or visit their website:

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