In essence, asset-based lending is a type of financing which occurs when companies receive loans based on the value of their assets. For instance, a company’s Accounts Receivable, its equipment, or its inventory may have value to a lender, and this could serve as the foundation for a business loan. The advantage of asset-based lending is that your company need not have good business credit, because the value of the assets themselves minimize the risk to a lender. There are two primary forms of asset-based lending, one of them being asset-based loans themselves, and the other being invoice factoring.
This has become a very popular form of asset-based lending because it’s so easy to set up and execute. All that’s necessary is that a company sells some or all of its invoices to a factoring company in exchange for upfront cash. At that point, the factoring company would then assume ownership of the invoices and would be obliged to collect the invoice amounts from customers. Once the customers have paid off the invoices, the factoring company would remit the withheld portion of the invoice amount to the selling company, after subtracting out its factoring fee.
These kinds of loans typically are arranged with companies that have some valuable assets which can be used as collateral. Inventory stores are one common form of asset which can provide the basis for an asset-based loan. The amount of money that can be loaned will generally depend on the value of the asset itself. As an example, if your company inventory stores are outdated, they will have much less market value, and therefore would not generate a high potential for an asset-based loan. On the other hand, if your company is in possession of some valuable equipment that is fairly new, you might expect to arrange for a loan up to 80% of its market value.
Considering asset-based lending?
If you are considering asset-based lending, we’d like to talk with you about it. Contact us at Purevue Capital so we can discuss some options which might be available to you in this area.