At WiseCap, we know that working capital is essential to both the day-to-day success and long-term survival of your business. In this post, we’ll dig into asset-based lending which can provide a good alternative to traditional bank loans by offering larger loans, quicker turnarounds, and more flexible financing options. Take a look below and get in touch with our WiseCap experts to discuss how asset-based lending can give you cash in hand to reinvest in your business.
How Does Asset-Based Lending Work?
Asset-based lending refers to a loan or line of credit whereby the lender surveys the borrower’s hard assets, makes a valuation on the total worth of those assets, and then offers the borrower a percentage of that value in cash. Hard assets can encompass buildings, land, and equipment, but also include everything you’d consider on a balance sheet, such as inventory, purchase orders, and accounts receivable. With asset-based lending, the borrower’s assets are used as collateral, meaning ownership is transferred to the lender in the event that the borrower defaults on the loan. This allows the borrower to access working capital while providing the lender with the security it needs to facilitate the loan. Asset-based lending typically offers a 70%-80% loan in relation to the total value of the assets being considered. Whether you’re looking to make small investments or big changes in your business, an asset-based loan can provide you with the flexibility needed to get from Point A to Point B. Here at WiseCap, we do business with a wide variety of lending companies and can work with you to identify the most appropriate lender for your business needs.
When Does an Asset-Based Loan Make Sense?
Whereas a typical bank loan is based on the financial strength of a company, prospective borrowers have to show detailed projections and offer a business plan to receive loans that are further limited by covenants – or terms – set by the lending institution. This creates red tape that can make accessing term loans difficult for many small and medium-sized businesses. Since asset-based loans are based on collateral rather than a credit score or other financial metrics, they are often more accessible to a wider variety of businesses.
Asset-based loans also offer an efficient way to get funding when you need it most. Whereas banks are highly conservative by nature and may only consider increases to your loan or line of credit on an annual basis, a company’s growth can easily outpace what a traditional bank loan can offer. This creates issues with cash flow that can jeopardize new contracts, projects, and opportunities. An asset-based lender, alternatively, can leverage assets such as accounts receivable, so that businesses don’t have to wait a year to get an increase on their line of credit.
Asset-based lending can provide an ideal solution for businesses in a variety of situations, from a farmer looking to finance a new tractor purchase all the way to a company working towards funding for a merger or acquisition. Financing can even be made available in the event that a borrower is looking to purchase a business without money in hand, by leveraging the assets of the business that they’re looking to buy, to pay the seller of that business. Asset-based financing is also an important option for borrowers who’ve fallen out of covenants with their primary lender on a loan or line of credit, but still need working capital to get by. If you have assets but struggle with cash flow issues or difficulty securing or working within traditional bank loans, asset-based lending could be worth exploring further.
When To Reach Out to an Expert
At WiseCap, we’ll work with you to identify the best path forward based on your financial goals and the assets at your disposal. Are you looking to acquire working capital for your business? Would you like to extract value from assets like buildings and equipment to reinvest in your company? An asset-based loan can provide the cash you need to purchase new land, upgrade your facilities, or hire additional staff members. As mentioned, it can also provide an alternative financing option for businesses that’ve fallen out of covenants with their primary lender. And whereas banks will typically suggest one or two lenders to businesses in this situation, at WiseCap, we work with a wide variety of asset-based lending companies doing business in a number of different sectors. We will work with you to find the right option for your financial needs, and our seasoned brokers will eliminate the heavy lifting of having to seek out and evaluate lenders yourself.
With easier access to capital and tailored solutions to fit your business needs, get in touch with WiseCap to learn more about asset-based loans and lines of credit today!