Is an Asset Based Loan the Best Option for Your Business?

For businesses, getting enough capital to operate successfully without hitting cash flow constraints is a major concern. The last thing they want is to struggle to cover bills or fund ambitious expansion plans. At a certain point, most companies consider whether they should seek a business loan to help fund a new product line or simply to reduce the current financial constraints.

Here we look at whether an asset-based loan is the best choice for your business.

What is an Asset Based Loan?

Some companies have invoices flowing through their sales ledger that take time to get paid in full. It largely depends on the industry as to how long a fresh invoice takes to be paid. It can be 30 days but often it requires more time, especially when dealing with conglomerates. For small businesses, it can be especially taxing to wait for payment.

An asset-based loan uses sales invoices that have been sent out but are as yet unpaid. These invoices are considered collateral with some loan companies willing to issue a credit line based upon them. The line of credit reflects the value of the qualifying outstanding invoices.

Are Other Lending Options Worth Considering?

It’s not always possible to borrow money on a standard business loan. Perhaps the business doesn’t have a long enough track record to be thought of as a reasonable lending risk. An unsecured business loan could get declined. It’s also possible that a newer company doesn’t technically qualify for a startup loan either.

Outside of getting new investment which is very tough to find in many industries, the funding options aren’t great. Businesses that lack real assets to borrow against or a long track record find it difficult to get the funding they require. Then it’s necessary to think about other funding options.

Does an Asset-backed Loan Make Sense for Your Business?

If your company lacks equipment or vehicles free from financing or other suitable business assets to use as collateral, then business loans sourced through Lending Express based on the value of your outstanding invoices makes a lot of sense. Essentially, you’re using what the business does have that’s valuable to increase the money velocity by cutting out the considerable wait to get paid.

With funds arriving sooner through a new line of credit, it’s possible to cover payroll or pay suppliers on time. Expansion plans are not held back because the cash flow situation is causing a major drag factor on the company. Even with newer companies growing quite quickly, cash flow lags behind invoiced sales by a wide margin in most cases.

Getting funding for business is often a challenge. The younger the company or the more funding is required, the tougher it is to find a lender that’s willing to make such a commitment. A broker is useful for a company seeking a loan because they can access many commercial lenders to find one offering suitable terms. This opens doors that would otherwise have remained closed to less connected businesses owners.