The Who, What, and When of Asset Based Loans
by Kevin Smith AuthorOne
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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Created on May 17th 2018 06:37. Viewed 506 times.