Your business needs money to grow. You may need funds to invest in marketing, bringing in new inventory, expanding to a new space or many other purposes. However, if you run a small business, getting the right terms on a loan can be challenging. The right solution may be asset-based lending.
This type of lending means that you are borrowing against your assets. In other words, you put up collateral to secure the loan.
The Process of Borrowing With Collateral
Typically, when you want to take out an asset-backed loan, you need to interact with the lender to determine what can be your collateral. This can be a liquid or fixed asset. The latter are the assets that don’t turn over rapidly. For example, your real estate and equipment are fixed assets. Liquid assets, conversely, are ones that may change in quantity and value a lot such as inventory.
You can expect to find more lenders willing to offer better terms on fixed assets. However, you also take on additional risk if you default on the loan. You may lose the building you are operating out of, for example. Once you have potential collateral, the lender will need to evaluate it. Often, these two components happen simultaneously.
Beyond settling on collateral, the process is quite similar. You need to provide financial statements and your credit history. The lender will determine what amount and terms can be extended to you.
Benefits of Putting Up Collateral
The main reason people use asset-backed loans is that they usually have significantly better terms than unsecured loans. The lender is taking on a lot less risk because they have some pre-defined recourse if you don’t repay your loan. Therefore, you can likely get more money and a lower interest rate.
This can mean more than just scoring a lower interest rate. Cutting down the cost of the loan can make a huge difference in your cash flow while you are repaying it. That may mean that you can invest more in your growth. It is worth putting up the collateral to ensure your business’s financial health.
Finding the Right Lender
Taking advantage of asset-based lending is easier when you have the right lender working with you. Building a relationship with a lender is a great way to get better terms and more trust. Explore some of your lending options. You may be surprised how much you can achieve with an asset-backed loan or line of credit from the right lender.
