Debunking 3 Myths About Asset-Based Lending
Myth 1: Only accounts receivable can be used as collateral.
Truth: While accounts receivable is the preferred asset for the lender due to its liquidity, other assets such as inventory, equipment, and real estate can be used as collateral for asset-based lending. The terms and conditions of the loan agreement will depend on the collateral.
Myth 2: Asset-based lending is limiting and inflexible.
Truth: Asset-based lending is a flexible alternative financing option for many businesses. As your sales increase, so does the amount that you can borrow. Additionally, traditional loans are more restrictive when it comes to how companies allocate their proceeds toward the business operations, whereas asset-based lending offers more fluidity about how the company can use the proceeds. In other words, with asset-based lending, companies are not restricted to specifically using the funds for just one purpose.
Myth 3: Asset-based lending is only for small businesses.
Truth: This is a common misconception. While small and medium-sized businesses are the most common asset-based borrowers, even large corporations may use asset-based loans to cover their short term needs. Asset-based lending is a great option for both large and small companies due to its flexibility and quick cash turnaround.
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