Finding capital to finance your start-up can be challenging. Asset-based loans represent an opportunity to get initial funding, plus provide access to additional resources over time.

What is Asset-Based Lending?

These loans use assets, typically inventory or accounts receivable as collateral. Usually, lenders will give you the cash equivalent of 70 to 80 percent of qualified receivables, and 50 percent of finished inventory value.

Obtaining an Asset-Based Loan

Start-ups sometimes struggle to secure asset-based lending, because the cost of managing a small versus large account is the same. But smaller companies can appeal to lenders by demonstrating long-term sustainability and knowledge of the business with:

• Detailed and accurate financial statements 

• A good system for financial reporting 

• Inventory with strong appeal 

• Customers who pay your invoices on time  

Benefits of Asset-Based Lending

Asset-based loans can be a lifeline for companies that are:

• growing quickly and need support to maintain momentum 

• dealing with a high amount of existing debt and need cash for a turnaround 

• working through an acquisition and need a cash infusion  

Service companies, manufacturers and distributors with seasonal revenue streams will turn to asset-based loans to maintain cash flow.

Drawbacks of Asset-Based Lending

While usually straightforward to obtain, an asset-based loan has potential downsides.

• Your loan amount will be tied to the quality of your receivables. Lenders will ‘qualify’ the value of customers who pay in less than 60 days and those who have good credit. 

• You’ll pay more for an asset-based loan than a traditional loan. Financing includes audit and monitoring fees. 

• You may be required to move your banking under the lender’s banner and may have to provide a personal guarantee. 

• You lose control of your cash flow since customers will send payments directly to the lender. While you’ll eventually receive your cash, lenders may keep a larger reserve if customer payments start to slow.  

Our team at Bear River Financial has more information about asset-based lending and other financing options to support your growth plan.