When you need money to finance your company’s growth, improvements, or even to make ends meet, your first thought is likely to apply for a loan. Though traditional business loans are always an option, they may not be the right choice for your business. Choosing an asset-based lending option will allow you to leverage the value of the items you already own to get a better loan. Here’s what you need to know about this type of financing option.
There Are Two Main Options To Choose From
Asset-based loan issuers typically offer two types of financing options: asset-based loans and factoring. Asset-based loans work similarly to traditional business loans. However, instead of the lender looking at your credit score and your business’s financial health to decide how much you can borrow and at what interest rate you can borrow it, they look at the value of your property. You secure the loan with collateral or your business’s assets. This could be a piece of equipment or even the building itself. Ultimately, the value of the collateral determines how much you can borrow. If you default on the loan, the lender will take possession of the collateral to settle your debt.
Factoring allows you to borrow money against outstanding invoices that your customers still need to pay. You’re able to borrow a portion of the value of those invoices and pay a fee for the advance. Once your customers pay the invoices in-full, the factoring company settles the debt.
Which Option Is Best?
Both asset-based loans and invoice factoring allow you to access money quickly. There are no restrictions on how you can use the money you borrow. You just need to follow the repayment terms outlined by the lender’s agreement. The easiest way to decide which option is best for your business is to look at the assets you have on hand.
If you have tons of valuable equipment, applying for an asset-based loan may be your best choice. You’ll be able to get more money upfront and may end up paying fewer fees for the loan. However, if you receive the bulk of your monthly income from invoices, factoring those invoices will help you get the cash you need quickly without having to worry about potentially losing out on a piece of equipment your business relies on. Regardless of the type of financing you choose, make sure you shop around and get quotes from different lenders. This way, you’ll avoid having to pay overly high fees or interest rates on the money you borrow.
Asset-based lending is a great way for businesses to get money fast without dealing with the headache of traditional business loans.