Asset based lending can come from a variety of sources. There are commercial sources that have entire divisions dedicated solely to asset based lending. You may find that you may want to use multiple sources for your asset financing needs.
Asset-based factoring, also known as asset based lending or asset based lending, is a favored method of financing illiquidity for start-ups, small and medium-sized enterprises, and any business that simply cannot or will not obtain it has bank lines available.
It simply consists of companies that sell their receivables for cash immediately. For a business to grow, it needs reliable and robust cash flows. With no money available, a business that remains uncovered for all of its weekly and monthly expenses is doomed.
One of the common types of asset based lending is flooring, a loan based on the inventory you purchase. Car dealerships have used this type of financing for decades. With this particular type of asset based lending, there are two distinct types of loans. One is strictly based on each inventory – such as cars, which are easily identifiable by the VIN (Vehicle Identification Number) carried by each vehicle. The dealership, for example, has so many days after the car is sold to pay the finance company. The other type of flooring is done strictly by invoice. In this scenario, the flooring company acts as a middle man for you. Place your order with your supplier and flooring company, pay the bill in advance, and take all available discounts. You then have a set number of days to pay the total invoice price to the flooring company (or bank).
Banks are also involved in asset based lending. This type of business financing is based on assets: receivables, buildings, inventory, and vehicles or other equipment. Don’t expect to get 100% financing, and remember that banks and financing companies are lucrative businesses, so that you will pay interest on them.
You should buy the most competitive interest rates and favorable terms from your asset based lending source. Make sure the way the loans are structured is something you can live with. Look at the worst situation. What happens if everything goes in the trash? Can you live with the terms then? Never forget that your source of funding will also look at the worst-case scenario and try to link as many of your assets as possible (both business and personal).
Even when you consider the possible downside, this is one of the best ways to finance your company’s needs. Asset based lending or asset financing is straightforward and easy to understand. Be sure to use your accounting professional to help assess this additional cost of business, as there is a cost. Often, it is the only way to solidly grow your company without expanding your working capital beyond its limits.
Take care of your needs and talk to the banking and flooring companies so that you have an excellent idea of what their expectations will be of your company. Your bearing and applied business money management practices.
Asset based lending gives business owners access to cash immediately, influenced by their good customers. Given the current credit environment, more and more companies are looking to consider receivables to allow them to grow in the short term.