The reality is, small businesses often encounter cash flow problems. As an entrepreneur, you are solely responsible for raising additional working capital. But qualifying for a bank loan can be one of the biggest challenges you’ll face. Unless you have a stellar credit report, years of track record, or growing at a reasonable pace, there’s little chance that your business will qualify for a bank loan. Fortunately, there are a lot of alternative financing options available for small business owners nowadays. With collateral to secure the loan, they can easily qualify for an asset-based lending New Jersey.
Asset-based loans help you obtain financing easily with the use of your assets. This will help your business operations running smoothly all year ‘round.
What is Asset-Based Lending?
All businesses possess assets that can be pledged as collateral for the loan. Vehicles, equipment, or real estates are usually the most commonly used assets to secure the loan. Asset-based lending, as the name implies, is a type of financing secured with business assets. Essentially, these assets will serve as the collateral for the loan.
Asset-based financing heavily relies on the assets of the borrowing company. The more assets the company owns, the greater their borrowing capacity will be. Since it’s considered as a secured loan, business owners can enjoy lower interest rates compared to unsecured loans.
This type of loan is helpful for businesses that already have accumulated properties as a guarantee to the loan. Lenders usually accept the following assets as collateral:
- Accounts Receivable (A/R)
- Purchase Orders
- Machinery and Equipment
- Commercial Real Estate
- Marketable Securities
- Intellectual Property
Most business owners typically use asset-based loans to expand their business, cover unexpected business expenses, or to refinance existing debt. It’s worth noting that some forms of collateral may have more value than others.
How Does Asset-Based Lending Differ from Bank Loans?
Banks are usually the first option that entrepreneurs think of when it comes to applying for a loan. However, it’s become more challenging for small businesses to qualify for a bank loan these days because of the stringent requirements. Asset-based loans provide a flexible alternative to entrepreneurs that don’t qualify for a bank loan or a business line of credit. Needing only an asset to guarantee the loan, business owners can get cash upfront and use it to increase their working capital.
Business owners who apply for traditional bank loans are usually asked to raise cash from their personal accounts or secure the loan with personal property. With asset-based loans, you don’t have to pledge any personal assets to secure an asset-based loan for your business. It possesses less personal risk compared to traditional bank loans.
Furthermore, while banks look at the business cash flow, asset-based loans look at the business’ balance sheets. The lenders will want to look at the company’s assets since this will be the primary requirement in qualifying for the loan.
Asset-based loans also allow you to keep your personal and business finances separate, which is a common issue among small business owners.
What are the Advantages of Asset-Based Lending?
Business owners can enjoy several benefits that come with asset-based lending. Unlike traditional bank loans, applicants don’t need a high credit score to qualify. For asset-based loans, your personal credit history is not a major consideration.
Another advantage of asset-based loans is, you can still use your business assets even while they serve as collateral for your loan. On the contrary, banks don’t usually let you use the collateral you used to secure the loan you received from them.
Aside from that, you’ll also get the biggest benefit of asset-based lending which is improved liquidity in your business. This is extremely helpful for companies that are growing rapidly or experiencing cash flow gaps. With the funds you get from lenders, you won’t have to worry about experiencing cash flow issues in the future. When you go with asset-based lending, the stability of your business’ finances will be secured.
Finally, the application process of an asset-based loan is easier and quicker than traditional loans. All the lenders want to see in your business is a track record of business profitability and the asset they can leverage. This isn’t the case with traditional bank loans, or other loans, for that matter.
Asset-Based Lending New Jersey
Whether you own a small business or a large enterprise, you’ll eventually need additional financing in the future to secure your business needs. For many, asset-based lending New Jersey is a useful financial tool that they can use to increase their working capital. They can use it to fund new business acquisitions and other major business expenses. So long as they have business assets they can use to guarantee the loans, they can get the loans they need within weeks after their application.