Asset Based Loans

There may come a time when you need a loan. Getting an unsecured loan may not be possible unless you have excellent credit. Even then, the loan amount you receive may not be high enough. Asset-based lending is a process of securing a loan with an asset. The lender will then place a lien on the loan until it is repaid.

When Asset-Based Lending Is Useful

Businesses are often the recipients of an asset-based loan. Borrowing against the value of a piece of land can raise money during slow periods. Customers rarely pay upon delivery of goods. However, the business still needs to pay its bills in the interim. Using land or property can be the quickest ways for a smaller company to raise money.

What Happens If The Loan Goes Unpaid

One advantage to the lender in this type of arrangement is a guarantee the money will be repaid. Borrowers who fail to repay their loans will have the asset seized. For example, a person who fails to pay back their loan will have their collateral seized. The lender will then sell off the asset in question to get back as much money as possible. Borrowers may be required to pay back any remaining balance on the loan.

Asset-Based Loans Are Usually Easier To Get

Loan approval on an asset-based loan is much easier to obtain. Usually, the amount of the loan is determined by the value of an asset. Credit scores may also be a factor in the loan decision as well. However, secured loans tend to have looser borrowing requirements. Lenders will usually loan up to 70 percent of the actual cash value of the collateral. This means a building worth $100,000 will worth a loan up to $70,000 in most cases.

Revenues Can Be Used As Collateral As Well

Property and land are not the kind of asset-based loans. Companies that have large orders coming their way can use the potential revenues as collateral. This type of loan is generally referred to as a factoring loan. Factoring companies will provide the capital needed to make sure the company can fulfill the order. They will generally take 15 percent of the net profit as a fee. Using accounts receivables as collateral can make it even easier to get a loan. All your company will need is a large enough order for both parties to make a profit.

Businesses need the proper amount of capital to stay open. Attracting customers, filling orders and paying other bills takes a lot of money. Having the ability to offer many different items as collateral helps keep the smaller companies alive. The business owner can spend more time worrying about growing the business as opposed to begging for loans.