Should You Consider Asset Based Loans?
April 15, 2017
Before diving into the opportunity of getting a loan, you should examine the advantages and disadvantages of it first, especially if you plan on getting an asset-based loan from an ABL Facility.
First, you have to know that an asset based loan is a secured loan for businesses. It means that you need something valuable as a collateral. So it is often granted to companies in need of a working capital in making their business grow and expand. In this case, asset based loans only work if your company have assets in which a lending company could finance. It is a good indicator for the financing company if your asset has not been financed by other lending companies already, in other words, it has not been granted as a collateral to other lenders at the moment.
The asset usually used as a grant for this type of loan is in the form of accounts receivable. Other assets, such as real estate, finished inventory, and equipment, work just as well as long as they are solely owned by the business itself.
Now that we are done with the basics, the question now is if there really is a need for you to consider an asset based loan.
When your company is growing fast, and your company could not handle the additional cost of hiring more employers to meet the demands your business is taking by not having enough cash flow, it is best to consider getting an asset based loan.
There are times that your company is trapped between a hard object and a brick wall. One of these is having an impending payment where you lack the cash at the time, yet you don’t want your credibility to your supplier to get into a nosedive. This event also tells you to go on a hunt for a good lender.
Sometimes Lady Luck is not always on your side. You’ve been to traditional lenders, and each one of them finds it easy to turn you down because of a not-so-outstanding credit score—get an asset based loan.
When your demand is starting to overwhelm your company, yet you don’t have the current capacity to expand it, getting this kind of loan will prove beneficial to you as well.
Finally, if your company belongs to the small- or mid-sized business communities, you should also consider trying an asset based loan. Doing it will ensure competitiveness and survival of your company in the harsh business environment of today.
Other things that worth considering if you want an asset-based loan is when you want to restructure your company.
Getting this type of loan, though, also have its own repercussions. Since your asset is being held by your lender, it is not an unlikely event that your asset will be taken from you since you agree to let them take it in the event of your failure to pay. Also, you can suffer from paying high interest rate when your credit score is not that satisfactory altogether.
If you have met all the requirements above, then its time for you to consolidate all your assets and start from there.