Taking business loans can be a bit confusing, simply because there are so many different types of loans and you need to understand them before applying for them at a financial institution. Asset based loan is a highly compact type of loan option where you simply provide your lender with collateral in the form of business assets, properties, or jewelry. This is a very good option for businesses that cannot ensure steady cash flow to cover the loan amount.
How asset based funding work?
To begin with, you have to introduce your assets as collateral and in the process, you must understand that the terms and conditions will be worked out based on the type of collateral that you bring in. As a general rule, you should also know that the more liquid assets you have, the faster they can be converted to cash in time of need. This also means that the loan to value ratio will be higher. So your collateral has to be either in the form of real estate or business equipment.
When you look for asset based funding, it’s going to be in the shape of revolving credit wherein your unpaid invoices become the collateral. This is a highly flexible mode of funding and renders your business with a pre-approved limit, available for almost a year. What’s more, you always have the option to renew the loan. The debt repayment can be made periodically and the remaining available credit line with be parallel with the value of outstanding invoices.
However, the risk of losing assets is always present; especially if you couldn’t repay your loan then your lender is capacitated to seize the collateral and asset that’s been pledged for the funding purpose.
Why opt for asset based loans?
- Asset based loan gives your lender some level of security as the collateral is already pledged for the loan purpose.
- This is a speedy process and funds are transferred to the borrower within 7 working days. A credit score doesn’t matter with asset based funding.
- This is also a non-notification service and with an asset based funding; your lenders will be watching your sales. They don’t wreck their head with your past records or credit history.
A lot of financial institutions involve a lot of paperwork but with Accord Financial asset based loans, things are easy and comfortable.