An asset based business loan (ABL) enables businesses to access credit facilities by offering accounts receivable, inventory, equipment, real estate, or intellectual property as security. ABLs are a non-bank financing solution for bank loans or credit lines. They can be particularly valuable for young or fast-growing businesses with limited credit histories or volatile incomes. In this guide, you will find a step-by-step guide on how to apply for Asset Based Business Loans.
Steps to Get Asset Based Business Loan
Follow These Steps to Obtain an Asset-Based Business Loan:
Identifying your eligibility for a PPP loan.
The first step is determining whether your business would be a good candidate for an ABL. Both business viability and the quality of assets offered as security will be considered to give a better understanding. Key qualifications typically include:
- Lenders prefer firms with at least 2 years of operating experience. This demonstrates the ability to create assets regularly.
- You need to have legal control over quality pools of tangible assets such as accounts receivables, inventory, machinery and real estate that can be used to secure loans because Benefits of Asset Based Business Loan is more than bare minimum. Patents may also be considered as a certain form of intellectual property rights.
- A stable, and predictable historical and projected revenue and cash flow makes the assessment of repayment risk easier. This may be especially true for early stage businesses.
- Get a third-party view of your business. If you can mark most of them, your company may be good for an ABL.
Decide How Much Funding You Require
In order to step forward for the asset based loan facility, Identify your business’s financial structure, working capital requirements, future activities or costs, and strategic goals. This will inform key details like: This will inform key details like:
- Loan amount: Apply for only the amount that is reasonable and necessary for your business operations and which your business can afford to repay based on cash flows. When it comes to needs, overestimations may lead to denial.
- Loan term: Repayment periods range from 1 to 5 years. Use your payback capacity over fixed intervals to decide on the term of the loan.
The loan amount and term must be optimal to avoid taking too many risks, which may limit flexibility in the future. Some buffers are also built in in case future needs do grow.
Analyse Your Assets
Consult with your accounts department to prepare a balanced, comprehensive list of assets that you intend to offer as security. This is in respect to the current value assessment. Common eligible assets include:
- Accounts Receivable (AR): These are past sales for which the customers have not yet paid. In this case, the value is calculated based on the unpaid invoice amounts.
- Inventory: Raw materials, work-in-progress and finished products are some of the examples of inventory. Value your stock at the price you bought it for.
- Machinery & Equipment: Owned equipment which cannot be easily rented or leased such as on a short term basis. Use current market values.
- Business: use refers to commercial properties such as offices or factories owned by your business. Get professional appraisals done to ensure that the property is properly valued.
- Licenses: Patents, trademarks, copyright, or any license that the business entity may possess. Here, the value is highly dependent on the amount of revenues that such a company may generate in the future.
Choose an ABL Lender
ABL is available in many banks and most specialty finance companies today. The best lender for your business depends on factors like
- Loan size: Choose lenders that offer the type of loans you need in the specified size.
- Industry experience: It is recommended that you hire those with experience within your industry niche.
- Logistics: Be sure to consider lenders who are willing to accept forms of security aside from AR and inventory.
- Customer service: A lender that prioritizes your needs regarding the relationship it has with you is preferable.
You should begin by verifying whether reliable members of your business network recommended the leads. Also, look for research options on what various firms offer, their prices, and customer reviews. Reduce the total number of prospects to contact.
Document Your Loan Proposal
Finally, it is time to prepare a package of loan proposals with potential lenders selected based on the abovementioned criteria. Key components should cover:
- Business Profile: Formation, management, hierarchy, advantages, etc.
- Management Team Credentials: This involves information on the owners’/ executives’ capability to run the business.
- Financial Statements: Profit and Loss for the past two to three years with details of each expense and income account and Balance Sheet and Cash Flow Statement for the past two to three years.
- Collateral Assets: This includes documentation and valuations of the assets as per the step 3 above. It is understandable to demonstrate the quality and range of the asset pool.
- Loan Application: Quantity needed, proposed mode of payment, the purpose for which the money will be used, etc.
- Budgets: Estimated sales revenues and accompanying costs, including operating budgets for the next 1-3 years and capital budgets for the coming 3-5 years. Show the development and loan reimbursement methods.
However, compiling this information into a professionally written proposal shows the applicant’s thorough approach and business sense as opposed to other similarly situated applicants.
Submit Your Application
We all know that, in order to find a reliable lender among the masses of asset based loan companies is challenging, that’s why you need to cross check each aspect before submission of application. When you have your entire loan proposal, it is time to begin with the loan application.
- Gather the correct contact details at target lenders by visiting their websites, using recommendations, or simply dialing them.
- Use introductory messages to check on the list’s engagement and open the floor for discussions. Share as much information about your business, goals and desired loan characteristics as possible.
- If interest levels are high, proceed with applying for your loan to trigger the underwriting process. It is also important to be very sensitive to the lender due diligence questions during the process of the review.
- Discuss the specifics of the loan once granted terms, interest rates, charges, security, and conditions among others, until the borrower and lender agree on the terms of the loan.
- As agreed once, close financing by reviewing the last details of the contracts in detail, transfer all the required securities, and get your funding!
Be prepared and interested from the initial stage of a business asset-based loan until the funding is closed for easy fund securing by the business.
Purple Tree Funding: Get Asset Based Business Loans on Easy Terms
Being the #1 asset based business loan provider, the specialist of the Purple Tree Fuding, makes the application process easy. Although an ABL application requires much preparation and cooperation, this type of financing can be very beneficial for companies that do not have a long credit history or fixed assets, such as real estate. With only a few document submissions and simple application, you will not only get in touch with the lender but your loan will also be approved in less than 24 hours. By following this step-by-step guide, your business can obtain the necessary working capital or growth financing through loans that use accounts receivable, inventory, equipment, or other balance sheet assets as collateral.
