ABL, frequently pronounced as an Asset Based Business Loan, is leaving the traditional ways of loan approval behind. Asset based financing offers the working capital required by businesses through the use of their assets as security. Also, during the loan, businesses can continue to own and utilize things like inventory and equipment. In summary, asset-based lending is a valuable opportunity for financing the working capital needs of those businesses that cannot meet traditional banking requirements, such as credit history, revenues, and collateral. This fast and versatile funding helps to overcome temporary liquidity shortages, invest in new opportunities, or pay for operating costs.
Most small business owners require additional capital to grow their businesses, buy assets, or meet expenses when they face financial difficulties. Banks and other lenders, however, consider small businesses high-risk borrowers. Fortunately, business owners can rely on asset based loan facilities to get funding since they cannot easily access loans from commercial banks.
Advantages of Asset Based Business Loans?
There are many benefits of Asset-based business loans. Few of them are as follow:
Greater Flexibility with Collateral
Generally, asset-based loans are more liberal in terms of collateral than traditional bank loans. Lenders can offer loans against accounts receivable, inventory, equipment, real estate, and other balance sheet assets. It does not necessarily mean that one has to possess real estate or fixed assets to qualify. You can offer any valuable property that the business possesses as security for the loan. This makes it easier for more firms to obtain the essential funding.
Higher Approval Rates
Because asset-based lenders are more interested in the worth of the assets put up for security than the creditworthiness of the borrow, it is more probable for businesses with poor credit or short operational history to secure asset-based financing. In approval decisions, the quality of your pledged assets and the ability to sell the same counts, not your performing track record. This allows new businesses and those trying to recover from slow seasons or financial difficulties to be approved. While these businesses may not be able to secure traditional bank loans, they can still secure asset-based loans if they have sufficient eligible collateral assets.
Receive Larger Loan Amounts
The amount of the loan that you can get will depend on the value of the business assets that you will offer as security. From asset-based financing, it is easier for businesses to borrow more significant amounts of money than what they would be allowed under unsecured loan products. In cases where a company has large accounts receivables, equipment, machinery, commercial vehicles, inventory, purchase orders, and open patents, trademarks, and licenses, an asset-based lender will offer a loan that will not exceed a certain percentage of the value of such investments. This percentage is not fixed but generally ranges from 50% to 90% of the collateral’s market value.
Access Funding More Quickly
Because asset-based financing is not predicated on the business or personal credit scores, these loans are processed and funded within a shorter period. Approaching a local bank for a loan requires several steps, including considering the firm’s credit history and future expectations. Asset-secured lenders, on the other hand, mainly rely on asset values. This streamlined underwriting is beneficial in enabling qualified applicants to obtain the funding for their loan within a shorter time to address their urgent needs. Most asset-based lenders disburse the approved loans within a few business days rather than the weeks or months that traditional bank loans take to go through.
Make Interest-Only Payments
Many traditional small business term loans are fully amortized, meaning that the borrower pays a portion of the original loan amount plus interest each month throughout the life of the loan. On the other hand, asset-based loan companies’ structure involves strict monthly interest payments rather than principal payments. The loan’s principal is repaid through refinancing, business profits, or the sale of assets at the end of the loan’s term. This situation gives businesses more months of working capital flexibility than other flexibility measures. This means monthly expenses are lower in interest-only structures, and less cash flow is spent.
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Even More Potential Available Funds
Small business loan approvals at big banks were down more than 10% from 2019 to 2018, while the lending market share for online lenders and asset-based funding companies increased. When traditional banks contract their lending activities and set higher standards when granting loans to businesses, specialist lenders come in to finance such businesses. This also pressures the bank’s balance sheets; it cannot afford to take more risks by extending credit to small businesses. Therefore, asset-based loans allow companies more open borrowing opportunities than clogged bank loan avenues.
Lien-Free Financing Options
Most asset based business loans like Opened Capital provide lien-free asset-based loan solutions. Lien-free structures mean the lender does not take legal charges on the business assets you have offered as security. This leaves you with more flexibility in case other credit requirements arise. Since you have no official liens on your asset titles, it will be easier to pledge the same assets with another lender. Lien-free capabilities help merchants who took a merchant cash advance but later require equipment financing with old liens as an encumbrance.
Check the Eligibility of the Business For Asset-Based Loan
It can be said that virtually any business can be eligible for asset-based financing, provided you have valuable assets to pledge. Common examples include:
- Businesses with significant investments in machinery and equipment, inventory, and accounts receivable
- Big order dealers and stockiest who have significant quantity demand and inventory.
- Fleet managers in transportation companies and freight brokers
- Trademark and business licenses and accounts receivables as security by professional service firms
- Business entities in construction and development activities involving equipment and various tools.
- Restaurants, retailers, and other business establishments own their properties free of encumbrances.
Loan utilization scenarios include business development strategies, investing in new equipment or machinery, acquisition and merger, refinancing, and additional working capital.
Are You Prepared to Talk About Your Unique Requirements with Purple Tree Funding?
At Purple Tree Funding, our asset-based loan specialists assist in determining the most suitable financing arrangements and the right loan amounts. We offer flexible terms of 3 months to a specific duration ( depending upon the financing options), with customized interest rates and ease of access to the funds for timely exploitation of opportunities.
So let your business flourish with our customized funding solutions with a loan amount of up to $500k.
