The popularity of asset-based lending continues to increase daily as businesses seek alternative financing methods. This lending option offers flexible financing to businesses facing cash flow shortages, especially due to growth.

What Is Asset-Based Lending?

Asset-based lending is financing that enables someone to revolve a credit line or take a loan with their assets as collateral. Compared to other products, the difference between this form of lending is that lenders determine their financing based on the strength of their assets instead of their businesses.

Why Should You Opt For Asset Based Lending?

These loans usually have many advantages for various businesses. They include:

Can improve a company’s cash flow quickly
Provides flexibility
Easily accessible
Applicable for corporate turnarounds
Have fewer contracts than other financing options
Some solutions, including factoring, are more expensive

The Structure Of A Transaction 

Typically, an asset-based lending transaction is structured as a revolving credit line. The size of the line is usually determined by a business’s borrowing base according to its eligible assets, including properties, machinery, inventories, and accounts receivables.

Lenders usually do not allow their clients to borrow the full value of their assets as the borrowing limit is generally based on the asset type. Typically, accounts receivables have the highest limits, at 80% to 85%. Since inventories have liquidity risks, their limit usually nears 50%. Moreover, lending limits are also based on the quality of the respective asset.

After establishing a borrowing base, a customer may submit a lending request to their financier. The lending firm usually processes the request and dispatches the funds to the customer’s bank account, authorizing immediate fund use to the client. The transaction settles when the respective assets change to cash, particularly when clients pay their invoices.

The Fee Structure 

Many revolving asset-based loans backed by receivables apply a two-fee structure, the discount, and the service fees. The discount fee is usually a one-time fee charged according to the gross value of the financed invoice batches. On the other hand, the service fee is a fraction charged against the used funds.

Are you looking for a reputable company offering asset-based lending? Contact us today at First Class Lending for more information.