Small & medium-scale businesses often have a hard time managing cash flow and working capital needs. Whether it is about seasonal demand, or buying new inventory, it is important to have access to finance. If your company cannot secure or get approval for traditional loans, you can consider the choice of asset-based financing. Options like Accord Financial asset based loans have helped hundreds of small businesses in Canada, and the option is a flexible one. How useful is asset-based financing and is this the right option for your business? In this post, we take a look at the basics.
What exactly is asset-based financing?
Through asset-based financing, you are basically putting the existing balance sheet assets to good use by pledging them as collateral to obtain a loan. Accounts receivable financing is a form of asset-based loan. The biggest advantage of asset-based financing is the level of flexibility a company can have with using the funds. With traditional loans, the purpose of lending is rather specific, which is not the case with such loans. Balance sheet assets that can be used for this form of financing include accounts receivables, inventory or stock, machinery, equipment, and so on.
Knowing the major aspects
Before you consider asset-based loans, here are some facts worth knowing –
- Getting approved for asset-based loans is rather easy. You can expect to get an approval within a few ways.
- While lenders may want to know credit standing and overall performance of your business, but these are not hard factors for getting asset-based loans.
- The interest rate of asset-based loans may vary between lenders, but level of risk and assets used for collateral do have an influence on the terms of lending.
- You can only borrow a percentage of the actual value of your assets. The lender will typically work with an appraiser to evaluate your assets that are being used for the loan.
- This is a form of secured loan, and therefore, there is always a chance of losing your company assets, if you don’t repay the loan on time. Make sure that you have the intention to pay as the per the terms & conditions.
Finally, make sure that you are aware of your future expansion, financing, and other requirements, because these aspects do determine if your company will be able to repay the asset-based loan. The last thing you want is losing your valuable assets.