Understanding the Advantages of Asset-Based Loans

Businessman and BusinesswomanDue to a recent economic crisis, many companies are finding it harder to get approved for conventional loans because of stricter policies implemented by banks and lending companies. Many business owners have decided to use asset-based loans to meet the financial needs of their operations.

Tabbank.com shares more information about this financing option.

Asset-Based Lending In a Nutshell

An asset-based loan (ABL) is a type of secured loan for businesses where entrepreneurs use their assets as collateral in order to get the money they need. These assets include equipment, inventory, accounts receivable, and other balance sheet assets. Any business, small or large, can easily qualify for an asset-based loan as long as it has strong assets with stable balance sheets.

Benefits of ABL

Obtaining ABLs can be faster and easier than getting a traditional loan because it requires fewer documents, meaning there is less to process. As long as you meet all the criteria set by the lender, you are good to go. This is also a good option for companies that need an immediate source of cash flow due to financial struggles or when they are going through an expansion.

With an Asset-Based Loan, you are just using the value of your assets as collateral for a cash advance, which will be repaid with future invoice or sales payments. This way, your company stays debt-free.

Costs of ABL

Not all lending institutions charge the same fee. Some will charge higher than others while some will base it on how much the company invoice per month is. The fees associated with this financing option vary depending on the collateral value and the total loan amount. In most cases, the total loan cost is based on the annual percentage rate (APR) that can range from 7% to 17%.

ABLs generally have a higher interest rate than traditional loans, but their accessibility is more than enough to outweigh the higher costs, especially for companies that cannot qualify for conventional loans. Furthermore, not all lenders charge the same fees, so it’s best to shop around before settling for one.