When you are running a business, you will need cash in the bank to cover all of your expenses. It’s a sad fact that sometimes a business will not have enough money to cover their expenses. This is especially true for new businesses. When this happens, businesses might need to take out loans. There are many types of loans to pick from, with one of them being an asset-based loan.
What is Asset-Based Lending?
Asset-based lending is a type of loan agreement. In this type of agreement, the loan is given based on a business asset that is used as collateral. The loan amount will directly depend on how much the item that is put up for collateral is worth. According to Entreprenuer.com, the loan amount can be anywhere between 50-80% of the value of the collateral.
When Should Businesses Try Asset-Based Lending?
When taking out an average loan, your lending institution will usually take a look at your credit score and income. If you take out a loan under your business’s account, then the lending institution will look at your profits and expenses. If you do not have a long credit history and if your business is new, then you may not have enough, in the way of paperwork, for a bank to give you a “normal” loan.
If your business cannot get a normal loan, then taking out an asset-based loan might be right for your business. However, you need to make sure that you have valuable collateral if you want to qualify for an asset-based loan.
What Counts as Collateral?
Since you absolutely need collateral to get an asset-based loan, it’s important to know what you can actually use as collateral. Your lending institution will likely have their own terms for what they will and will not accept as collateral. Below are some common things that can be used as collateral.
- Real estate
- Unpaid invoices
- Blanket lien
If you do not have any of these items to put up for collateral, or if you cannot get a large enough loan with these items alone, then you can also put your personal assets up as collateral. Personal assets may include your home or car.
If you need money for your business quickly, then using asset-based lending might be your best bet. Use this option only if you have collateral to put up. Of course, make sure to keep up your payments so you can keep your business running and keep your collateral!