The recent economic crisis has left many businesses struggling financially. Unsecured loans are hard to come by, which means organizations have few options to get financing.
Due to this, asset-based lending has become a popular option for business owners. An asset-based loan (ABL) uses the company’s assets as collateral. The company’s asset size determines the amount of money it can borrow. Such a loan benefits a firm in the following ways
Quick Access to Cash
If your business meets the qualifications required by the lender, you have a big chance of accessing the loan in a week or so. The underwriting and application process is faster compared to the process involved in conventional loans. This is paramount if you are in need of quick cash for your business operations.
Once you obtain the financing, there are few restrictions on how you spend the money. As long as you use the money on your business, the lender will not have a problem. The loan is also based on the assets of the firm rather than on the profits or the firm’s balance sheet, making it flexible. The loan amount can also increase as your business grows. This is important if your business is growing fast and you need more funds to finance the growth.
As the loan is based on the collateral, fewer covenants are necessary. Mostly what is required is the net worth and debt service coverage, which makes it easy to comply with the loan requirements.
Low Interest Rates
Compared to unsecured loans, the interest rates for an ABL are lower. This is because of the availability of the collateral, which the lender can claim in case of default in payments.
Provides Financial Stability
The loans can save companies that are undergoing financial difficulties. As long as your business has proof of financial control, a record of profitability, and assets that can be used as collateral, obtaining an ABL is simple. You can use assets, such as accounts receivables, equipment, inventory, and invoices from creditworthy clients to restore your business’s stability.
Asset-based loans are gaining popularity among business owners who are facing hard economic times or who are restructuring. Compared to conventional loans and lines of credit, an ABL offers quick and easy access to cash on flexible terms.