What is Asset-Based Lending?
The term ‘Asset-Based Lending’ is as simple as it sounds – a line of credit, which is based on your assets. It refers to providing a line of credit, which is secured by accounts receivable, equipment, or inventory. These assets determine the availability of the line of credit.
The most significant advantage of asset-based lines of credit is that they offer working capital for all those companies that may be on the development stage or are highly leveraged. Maybe they are in need of more capital compared to what’s being offered by their current lender. There are times when a company needs a line of credit to accomplish that big order project or to get over a financial crunch.
How Does ‘Asset-Based Lending’ Work?
An Asset-Based Line of Credit allows you to borrow money in an amount that a Borrowing Base Certificate (BBC) determines. You would complete this certificate (usually monthly) that will give you an idea about how much you have in accounts receivable at present. You can borrow 80% to 90% of your A/R (accounts receivable) and possibly, an additional amount against your equipment and/or inventory.
What are the Advantages of Asset-Based Lending?
One of the most significant advantages of asset-based lending is that companies are still authorized to have ownership over their assets over the life of the loan. It signifies that nothing is removed from the warehouse. You can continue to work as you usually would without waiting for the approval from a lender.
What are the Common Assets Provided as Collateral for Asset-Based Loans?
- Real estate
- Company inventory
Who Can Qualify for Asset Based Lending?
Asset-based financing is normally offered to SMEs (small and medium-sized enterprises) that are not only stable but also have assets that can be financed. Most asset-based loans have a minimum utilization requirement of $750,000 to $1,000,000.
Are you in need of asset-based financing? Get in touch with Biz Loan Bankers to know more about an asset-based line of credit.