5 Factors to Consider When Securing an Asset Based Loan

by Kevin Smith Author

Large and small businesses alike occasionally used asset based lending services when they need a quick way to get cash. It’s also an easy way for start-up businesses to get a loan when they haven’t established a high credit score. These types of loans are typically based either on your inventory or on your accounts receivable.

Your Credit Score

Unlike most other types of business loans, your credit score doesn’t make too much of a difference when it comes to getting an asset based loan in Cumming, GA. In fact, if you have a low credit score, it may be one of the only ways you can secure a loan. Still, you may find it easier to get an asset based loan if you’ve proven your company’s reliability with a high credit score.

Customer Reliability

To secure an asset based loan, your customers’ reliability is much more important than your own. The lending company will look for steady customers with a high credit score, who have a habit of paying their bills on time. The lending company earns their money back when your customers pay you, so this ensures that they’ll recover their loan.

Type of Loan

The type of loan you get determines how much money you can borrow. In general, you can get about 50% of the value of your inventory, or 70% to 80% of the value of your accounts receivable. This is because there’s no guarantee that you’ll sell your inventory, while you can be relatively certain your clients and customers will pay their bills. This is where having customers with excellent credit ratings can really come in handy: the more trustworthy they are, the more your lending company will be comfortable loaning you.

Inventory

The type of inventory you have can also affect the amount of your loan. If you sell commonly-used products that are in high demand, lending companies can feel fairly confident that you’ll be able to sell them and pay back your loan. However, if you specialize in expensive or custom products with a niche market, a lending company might be a little more wary.

Amount of the Loan

In general, lending companies like making big loans. It doesn’t cost them any more to keep track of the loan, no matter what the size, so they can make more money with the same amount of effort. Of course, companies may also hesitate to make too large a loan if you or your customers are new clients or don’t have a solid credit rating. Talk to a financial adviser about how large a loan you need and any other questions you may have about securing an asset based loan in Cumming, GA.