Asset-Based Loans Long Island: How it Works, Why Use It
Ezra Cabrera | February 28, 2019
Is your business struggling with cash flow? Do you have business assets at your disposal? If you’re facing cash flow problems, your assets could be the source of an ideal solution. An asset-based loan Long Island is a form of financing that uses assets – inventory, real estate, invoice, etc. – to secure the funding.
Businesses often turn to banks to fund their operations, but banks make it almost impossible to qualify for unless you have perfect credit and outstanding business history. Not to mention, banks are hesitant to grant small businesses with any type of loan. For that reason, asset-based loans are here to help remedy your cash problems.
How Does an Asset-Based Loan Work?
In the simplest sense, an asset-based loan is a financing option secured by an asset – physical or not. The asset works as a guarantee for the loan until the full amount is repaid. In cases where the borrowers fail to make repayments as agreed, banks or lenders can seize the asset and use it as payment for the loan. As mentioned, an asset-based loan can be secured by the following assets:
- Accounts receivable (A/R)
- Purchase orders
- Machinery and equipment
- Commercial real estate
- Marketable securities
- Intellectual property
Because there is an asset involved, the loan terms may be more flexible. The more liquid the assets, the better the terms you’ll receive. Bear in mind that a number of these assets hold more value over that of other types. Some lenders accept only one kind of asset, while others use a combination of them. Unlike factoring, you don’t ‘sell’ your assets, but rather you borrow money against them.
Related: 4 Ways You Can Use an Asset-Based Loan
The downside of asset-based loans is that the interest rates are higher compared to traditional loans. However, it’s lower than unsecured loans like a merchant cash advance. Depending on the lender, you may also pay for accounting fees since lenders usually conduct audits to monitor the business. Some lenders won’t charge accounting fees but offset them with higher interest rates.
As you look for the best deal, make sure to compare the terms and conditions as rates may vary among different lenders. Factor in the interest rates, fees, and the advance amount offered when shopping for an asset-based loan.
Does Your Business Benefit from Asset-Based Loans?
If your business needs cash, but you’re unqualified to obtain financing with traditional lenders, you should apply for an asset-based lending loan. Here are some of the reasons why you should consider applying without delay:
1. Hire employees
Having enough employees is vital in keeping your business operations efficient. However, hiring them can be quite costly. If you don’t have enough capital to pay for the payroll, you can use asset-based loans to get the cash you need.
2. Pay suppliers on time
Ease of access to cash is also important for businesses since they will have to pay their suppliers for the goods. Paying on time means better credit ratings and relationships with vendors and suppliers. With asset-based loans, you can get the cash you need to purchase goods whenever needed.
3. Fund business expansion
If there’s one goal that all businesses have in common, it’s expanding. However, without the needed funds, you won’t be able to take on more opportunities. With asset-based financing, on the other hand, you can obtain cash easily. Thus, when an opportunity presents itself, you’ll have enough capital to grab the chance. As long as you have an asset to pledge, getting the funding will be easy.
4. You can’t qualify for other loans
If there’s one thing that holds businesses back from applying for a bank loan, it’s the qualifications. Many businesses get rejected from traditional loans because they don’t have enough business history or their credit background is not sufficient. As a result, most of them suffer from cash flow problems which become the reason for their business’s demise.
Asset-business loans are easy to qualify for. Lenders don’t look at the borrowers’ credit backgrounds. Instead, they focus on the assets they pledge.
5. You need a quick cash
Many businesses find themselves in need of quick cash whether it’s for cash flow improvement or payment of goods. Asset-based loan approval typically takes a few days, at most. You must understand that the lenders may need to validate and assess the assets before they can grant you the loan.
Asset-Based Loan Long Island is a Viable Solution
Before you apply for an asset-based loan, make sure you understand the process and weigh the pros and cons. If you need cash to keep your business afloat, an asset-based loan Long Island may be the solution to your cash flow needs. It’s flexible, easy to apply for, and approval for the loan is quick. It’s best used for business acquisitions or when a company needs additional working capital.