The Basics of Asset-Based Loans
Deciding what type of loan you or your business needs can be a difficult process. If you are considering putting your securities or physical belongings up as collateral, then you should consider utilizing an asset-based loan. There are many benefits when it comes to asset-based lending. However, between the fine print and complex specificities, it can be difficult to figure out whether or not this is the right financing decision for you or your business. Here is some information that will educate you on the basics of this interesting option!
The Assets
As the description says, asset-based lending is when the borrower’s accrued assets act as collateral in the event that the borrower defaults on that loan. The borrower’s assets can include items like a printing press, embroidery machine, or even a selection of high-priced inventory. Another common asset used as collateral is security. This is a popular item accepted as collateral because it can be quickly turned into cash in the event of loan default.
The Structure
One of the advantages of asset-based lending is that typically, the financier will set up the loan as a revolving line of credit. A revolving line of credit is a type of loan wherein the financier allows the borrower to utilize the credit amount as funds to improve their business which the borrower eventually must payback. It is essentially an asset-based credit account from the financier. Most commonly that amount will be 80 to 85% at the highest of the collateral item or items’ market value so that in the event of a default, the loaner will be able to recoup their investment securely even if the market value or some other variable involved in the value of that collateral changes.
The Timing
This type of loan is key for someone who’s main assets are physical things or securities. Because these items are easier to get a return on in the event of the financier recouping their collateral, financiers are more likely to offer a quickly approved loan. Timing can be absolutely imperative for some people needing loans so that is something to consider when making your financial decisions.
Figuring out what type of loan to apply for can be tricky. If you are thinking about trying asset-based lending then these basic pieces of information can help guide you in the right direction for you or your business.
