What You Should Know About Asset-Based Lending
What is asset-based lending?
Asset-based lending is an alternative financing solution that helps struggling and growing companies alike meet their funding needs. By collateralizing their assets, such as accounts receivable and inventory, companies receive funding that is structured as a business loan or business line of credit. Asset-based lending is particularly valuable for companies that have difficulty qualifying for traditional financing from banks or need immediate funding.
Difference between Asset-Based Lending and Traditional Bank Financing?
The primary difference between the two financing options is what the lender looks to first. A traditional bank will underwrite a company’s cash flow, thereby requiring less collateral controls and more covenants. Only after looking at a company’s cash flow and balance sheet will traditional banks look at the collateral.
On the other hand, asset-based lenders, such as Accel Business Funding, look at a company’s collateral first because they are primarily concerned with the performance and quality of the company’s pledged assets. Thus, asset-heavy companies may have access to more funding than they would with traditional financing. In addition, asset-based lending is much more flexible as there are fewer required covenants than traditional bank loans do.
With an asset-based business line of credit, companies can choose the amount of money to draw down.
What types of companies use asset-based lending?
Since accounts receivable tend to be the preferred pledged asset, companies with creditworthy customers tend to be the best candidates for asset-based lending.
Accel Business Funding has helped many businesses through our asset-based lending services.