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The Who, What, and When of Asset Based Loans

by Kevin Smith Author

One option for small businesses in need of quick cash is the asset-based loan. What that actually is, however, tends to confuse just about everyone not in the asset-based loan industry. If you are looking for an asset-based loan in Atlanta, here is what you need to know.

What It Is

The easiest way to explain an asset-based loan is that it is a loan that uses a business’ assets as collateral. The assets most often used are inventory and accounts receivable and a loan amount is drawn against the totals for one or the other, each or both of those. Essentially, in exchange for cash now and quicker than you can get it with a traditional business loan, you are leveraging your future revenue.

In terms of figures, lenders will typically advance funds that total about 70 to 80 percent of the eligible receivables and 50 percent of inventory. So, if your company has $100 in receivables, a lender would extend to you $70 to $80 in funds. If you also had $100 in inventory, the lender would make $50 available to you. If combined, the total you could secure would be $120 to $130 in funds.

Who Qualifies

Any business with assets can qualify although it is important to note that merely having assets does not qualify you. If your receivables are unreliable or your inventory depreciates rapidly, the amount you can borrow or even if you can borrow can vary. Most asset-based lenders prefer to make larger loans because of the cost of administration, particularly if the assets depreciate rapidly or the people who owe receivables have a history of paying late or not at all. Asset-based loans are particularly appropriate for start-ups, manufacturers, distributors and service companies who go through seasonal or industry cycles.

What You Need

To qualify, as stated, your business needs assets in the form of receivables and inventory. Additionally, you should maintain detailed and accurate financial statements, robust reporting systems, common inventory and customers with a track record of paying on time.

Why You Need It

The best reason to take out an asset-based loan is that you need cash for operational expenses and need it fast. This type of funding can come in handy if you are growing fast, highly leveraged, undercapitalized or because of operational commitments that have tied up your cash flow. In some cases, a business just needs an infusion to address an emergency cash flow issue or prevent company growth from stalling.

Every company has a period where cash is thin. Fortunately, if that company has assets, they have options. If you meet these criteria, an asset-based loan in Atlanta might be perfect for your business.


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About Kevin Smith Senior   Author

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Joined APSense since, December 7th, 2016, From Utah, United States.

Created on May 17th 2018 06:37. Viewed 506 times.

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