A Manager’s Guide to Asset-Based Lending

Unfortunately, no business is immune to financial troubles. Some companies’ profits rise and fall with the economy. Sometimes, an otherwise lucrative business experiences an unexpected disaster that insurance doesn’t fully cover. No matter what causes a bad financial situation, it is important for you to find a solution as soon as possible. For this reason, many business owners turn to asset-based lending. Check out this quick guide to familiarize yourself with the practice.

Knowing What It Means

To know if asset-based lending is an option for your company, you first need to know what it is. Simply put, this type of financing allows you to use your assets as collateral to get funding. Both fixed assets, such as machinery or property, and liquid assets, such as outstanding invoices or inventory, are eligible for this type of lending. 

However, that doesn’t mean that you should jump right into the application process. It’s important to do your research first. Seek out educational resources (many are available online) to help you understand the application process, how much funding you can receive, how quick the approval will occur, and what happens to your collateral if you default on the loan. You might even consider attending a seminar or conference about the topic to ensure you understand all of the advantages and disadvantages. This will also provide you with the opportunity to ask questions and receive answers from an expert.

Starting the Process

Once you research asset-based lending and decide it’s the right choice for your business, it is time to choose a lender. It may be tempting to go with the first one you find so that you can get the ball rolling, but it’s important to vet lenders before signing on the dotted line.

Contact at least three different lenders to ask them about their processes, including how long approval takes and what their fees are in terms of interest and finance charges. After you have your quotes, you can look even further into each lender. Take the time to verify that each lender has the proper license to do business, check references to ensure former customers were happy with the service, and inquire into the overall reputation of each one.

Finally, be sure that the finance professionals working for each one have the knowledge and experience necessary to help you. It is best to choose a lender who is knowledgeable about your specific industry and can tailor your financing to your specific situation.

Above all else, ensure you have the means to repay any funding that you receive. After all, your assets may help you get financing, but you’ll just find yourself in an even worse situation if you default and use your equipment or inventory.

SHARE IT: LinkedIn