Secure a loan against the assets of your business and take advantage of better interest rates
Asset-based lending is a common way for businesses to improve their working capital if access to traditional financing is difficult.
As with all financial products, it is important to have all the information on how it works so that you can make the right decision for your business.
Secured against the assets of your business which lessens the risk to the lender resulting in more favorable interest rates than an unsecured loan
The focus is on the quality of the asset to be secured and less on the credit rating of your business
There are typically fewer covenants with asset-based lenders as they focus more on the quality of the asset to be secured and less on the credit rating of the business
When a customer places an order they issue a PO which outlines the order. The purchase order will show the order date, when goods are to be shipped, the quantity, and price per unit. The asset based lender will review the terms of the PO to understand who the customer is, the credit worthiness, and the value of the PO.
It is common that business owners value inventory at retail, but any asset based lender will look to understand what they can sell the inventory or in the event of a default. Some of the factors affecting the advance rate include the location of where inventory is stored, type of goods and how easily inventory can be sold if needed.
By taking the make, model, year and the condition of the equipment a lender will have the ability to assign a value to the equipment. The typical advance rates or LTV assigned to equipment and machinery is 60% of the FLV or forced liquidation value. This means that the lender will provide availability based on what they would be able to see the equipment for in the event of a default.
In most cases, commercial real estate will be used as an additional asset to provide liquidity on an asset-based facility, rather than the primary asset used to secure the loan.
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